Summary of Baidu's Conference Call Company Overview - **Company**: Baidu - **Date**: September 17, 2025 Key Points Industry and Company Valuation - Baidu's current market capitalization is undervalued, with a remaining valuation of only 10.9 billion RMB after deducting net cash, investment assets, and cloud business valuation [2][3][4] - The SOTP (Sum-of-the-Parts) valuation method indicates significant investment opportunities as the market shifts from packaged PE multiples to SOTP distribution valuation [3][5] Advertising Business Developments - AI transformation in Baidu's advertising business is notable, with 64% of search content generated by AI as of July 2024, enhancing user experience and driving MAU growth [2][5][6] - AI Agent's contribution to core advertising revenue rose from 9% in Q1 2025 to 13% in Q2 2025, while digital human advertising accounted for 3% [2][7] - Total expected AI-related advertising revenue for 2025 is projected to reach 8 to 10 billion RMB [2][7] Kunlun Chip Business - Kunlun chip shipments are expected to reach 69,000 units in 2024, ranking third among domestic chip manufacturers [2][9] - Strategic partnerships include a 1 billion RMB order from China Mobile and collaboration with China Merchants Group, with anticipated external revenue of 6 to 7 billion RMB in 2025 [2][9] Autonomous Driving Business - The "Luobo Kuaipao" fleet has surpassed 1,000 vehicles, with daily order volumes expected to exceed 200,000 in Q3 2025 [2][10] - The latest model, RT6, has a manufacturing cost reduced to approximately 30,000 USD, providing a competitive edge for overseas market expansion [2][10] Cloud and Personal Cloud Services - Baidu Cloud is a leading internet cloud service provider with full-stack capabilities, benefiting from increased AI demand across industries [8] - Innovations in personal cloud services, such as enhanced features in cloud storage and document services, are expected to improve user engagement and profitability [8] Governance and Management Changes - The appointment of new CFO Han Rui, who has extensive capital market experience, is viewed positively and is expected to contribute to the company's future development [5] Future Valuation Considerations - The valuation of Baidu is expected to increase as the potential of its business segments becomes more recognized, with a target price raised to over 200 RMB [4][13] - The company holds net cash of 155.1 billion RMB, providing a safety margin for overall valuation [12] Investment Recommendations - Investors are advised to closely monitor Baidu's business developments in the near term, as the company is positioned for potential valuation reappraisal similar to Alibaba's recent experience [15][16] Additional Insights - The significant progress in AI-related businesses and the introduction of new advertising tools are crucial for Baidu's growth trajectory [6][7] - The overall market perception of Baidu's business potential has shifted, indicating a broader recognition of its value [5][13]

Investment Rating - The report maintains a "Buy" rating for NetEase (NTES US) with a target price of $153.19, reflecting a 17.9x PE for the year 2025 [7][27]. Core Insights - NetEase's total revenue for Q2 2025 increased by 9% year-on-year to 27.9 billion RMB, slightly below consensus expectations by 1% [1][2]. - Adjusted net profit attributable to shareholders grew by 22% year-on-year to 9.53 billion RMB, aligning with consensus expectations [1][2]. - The gaming segment's revenue showed a 15% year-on-year increase to 22.1 billion RMB, although it was slightly below expectations [2][3]. - The company has a robust pipeline of new games, including "Destiny: Stars" and "Diablo II" remastered, which are expected to drive future growth [1][4][13]. Revenue and Profitability - Q2 gaming and value-added services revenue rose by 14% year-on-year to 22.8 billion RMB, with gaming revenue specifically increasing by 15% [2][3]. - Deferred revenue for Q2 exceeded expectations, decreasing by 4% quarter-on-quarter to 17 billion RMB [2]. - The gross margin for gaming and value-added services improved by 1.4 percentage points to 70.2% [2][12]. Game Development and Market Position - The company launched nine new games in May 2025, with significant titles in the pipeline, including "Destiny: Stars" and "Diablo II" remastered [3][4][13]. - The online peak for "Fantasy Westward Journey" reached 2.93 million users, marking a historical high [3]. - The mobile gaming segment is expected to see a recovery due to a low base in the second half of the year, with anticipated growth driven by summer activities and new releases [4][23]. Financial Forecasts - Revenue forecasts for 2025-2027 have been slightly adjusted downwards, with total revenue expected to be 115.5 billion RMB in 2025, reflecting a 0.9% decrease [6][23]. - Adjusted net profit forecasts for 2025-2027 have been revised to 38.9 billion RMB, 43 billion RMB, and 48 billion RMB respectively [6][23]. - The adjusted operating profit margin is projected to be 35.8% for Q2 2025, indicating a healthy profitability outlook [24].

Group 1 - Xiaomi Group's stock has dropped over 4%, currently at 51.6 HKD with a trading volume of 7.465 billion HKD [1] - In July, Xiaomi's vehicle deliveries exceeded 30,000 units, attributed to increased production capacity [1] - Guosen Securities reports that Xiaomi's Beijing factory phase two is about to commence production, with new capacity being planned [1] Group 2 - Future sales projections for Xiaomi's vehicles are estimated at 400,000 to 500,000 units in 2025, and potentially over 800,000 units in 2026 [1] - Reports indicate that Xiaomi is requiring users to pay the remaining balance in advance, or production will be suspended, with no official comment from the company [1] - Nomura has raised Xiaomi's target price by 79% to 61 HKD based on SOTP valuation, but downgraded the rating from "Buy" to "Neutral" due to limited upside potential [1] Group 3 - Nomura anticipates challenges for Xiaomi in the coming quarters, including lower-than-expected smartphone shipments and high sales base for IoT since the second half of 2024 [1] - Despite strong performance in the electric vehicle sector, market expectations remain high [1] - Jefferies noted a significant slowdown in the average selling price growth of Xiaomi's flagship smartphones in Q2 compared to Q1, indicating potential pressure on Q2 performance due to weak smartphone demand and high inventory [1]

Core Viewpoint - Xiaomi Group's stock has dropped over 4%, currently trading at 51.6 HKD, with a trading volume of 7.465 billion HKD. The decline comes despite an increase in electric vehicle deliveries, which exceeded 30,000 units in July due to enhanced production capacity [1]. Group 1: Electric Vehicle Performance - Xiaomi's electric vehicle deliveries in July surpassed 30,000 units, attributed to increased production capacity [1]. - The second phase of Xiaomi's Beijing factory is set to commence production, with new capacity being planned [1]. - Projections indicate that Xiaomi's electric vehicle sales could reach between 400,000 to 500,000 units by 2025, and potentially exceed 800,000 units by 2026 [1]. Group 2: Market Analysis and Forecasts - Nomura has raised Xiaomi Group's target price by 79% to 61 HKD based on SOTP valuation, but downgraded its rating from "Buy" to "Neutral" due to limited upside potential [1]. - Future challenges for the group include lower-than-expected smartphone shipments, high sales base for IoT products since the second half of 2024, and elevated market expectations for the electric vehicle segment [1]. - Jefferies noted a significant slowdown in the average selling price growth of Xiaomi's flagship smartphones in Q2 compared to Q1, indicating potential pressure on the company's Q2 performance due to weak smartphone demand and high inventory levels [1].

Group 1: TAL Education (好未来教育) - The K12 education training business is performing steadily with a revenue of $580 million for Q1 FY2026, representing a 39% year-over-year increase. Adjusted operating profit reached $25 million, exceeding expectations [1] - The strong demand for small class tutoring and increased enrollment due to the expansion of teaching points are driving revenue growth. Sales of learning machines also showed healthy year-over-year growth, supported by the launch of new products [1] - For Q2 FY2026, the overall revenue growth is expected to be around 30%, maintaining the full-year revenue growth forecast at 28% with an adjusted operating profit margin projected to exceed 7%, doubling from FY2025 [1][2] Group 2: NIO Inc. (蔚来汽车) - The pricing strategy for the L90 model is aggressive, with the starting price set at RMB 265,800, which is lower than the previously announced pre-sale price. This pricing is expected to boost sales significantly [3] - The successful launch of the L90 model is anticipated to lead to stable monthly sales exceeding the market expectation of 5,000 units, paving the way for the upcoming L80 model [3][4] - Despite a 50% rebound from its low, NIO's 2025 price-to-sales ratio remains at 0.85, which is lower than its peers, indicating potential for continued stock price recovery [4]

Investment Rating - The report maintains a "Buy" rating for Pinduoduo with a target price of $135.58 per ADS [5][12]. Core Views - The Q1 performance of Pinduoduo fell short of expectations, with revenue of CNY 956.7 billion, a year-over-year increase of 10.2%, but below the Bloomberg consensus estimate of CNY 1,016.0 billion [9]. - Non-GAAP net profit for Q1 was CNY 169.2 billion, a significant decline of 44.7% year-over-year, also missing the consensus estimate of CNY 278.8 billion [9]. - The report highlights that while advertising revenue showed good performance, commission income was under pressure due to increased merchant support policies and adjustments in the Temu business [9]. Financial Forecasts and Investment Recommendations - Revenue projections for Pinduoduo are adjusted to CNY 4,403 billion, CNY 4,883 billion, and CNY 5,250 billion for 2025, 2026, and 2027 respectively [3][11]. - Non-GAAP net profit estimates are revised to CNY 1,072 billion, CNY 1,317 billion, and CNY 1,499 billion for the same years [3][11]. - The report employs a Sum-of-the-Parts (SOTP) valuation method, estimating the main e-commerce platform's value at $143.9 billion, the Duoduo grocery business at $5.9 billion, and the Temu business at $42.7 billion [12][14]. Key Financial Metrics - For 2025, the expected operating revenue is CNY 440,349 million, with a year-over-year growth of 12% [10]. - The projected operating profit for 2025 is CNY 112,152 million, reflecting a 3% increase from the previous year [10]. - The report anticipates a gross margin of 61.1% and a net margin of 22.1% for 2025 [10].

Investment Rating - The report maintains a "Buy" rating for the company [7][26]. Core Insights - The company's total revenue for Q1 2025 increased by 7% year-on-year to 28.8 billion RMB, exceeding consensus expectations by 1% [1]. - Game and value-added services revenue grew by 12% year-on-year to 24 billion RMB, with PC game revenue significantly outperforming expectations, increasing by 85% year-on-year [1][2]. - The adjusted net profit attributable to shareholders rose by 32% year-on-year to 11.2 billion RMB, surpassing expectations by 19% due to improved expense management [1][4]. Revenue and Profitability - The company expects Q2 and full-year 2025 PC game revenue to grow by 60% and 40% year-on-year, respectively [1]. - The gross margin for game and value-added services improved to 68.8%, driven by the high margin of new game releases [1][4]. - The adjusted net profit forecast for 2025 has been raised to 39.4 billion RMB, reflecting a 4.7% increase from previous estimates [4][22]. Game Releases and Market Performance - The new game "Marvel: Clash" is anticipated to become a long-term revenue generator, with an average of 120,000 concurrent players on Steam in April [1][2]. - The mobile game "Seven Days World" launched globally on April 24, achieving top rankings in 166 countries, although its revenue contribution remains limited [3][15]. - The report highlights the potential of upcoming titles such as "Destiny: Rise" and "Infinite" in the second half of the year [2][3]. Financial Projections - Revenue projections for 2025-2027 have been adjusted upwards by 1%, 2.4%, and 4.2%, respectively, primarily due to increased contributions from PC games [4][22]. - The adjusted net profit for 2026 and 2027 is forecasted to be 42.9 billion RMB and 47.9 billion RMB, respectively, reflecting a growth trajectory [4][22]. - The target price for the company's stock is set at 148.25 USD, corresponding to a 17.2x PE ratio for 2025 [7][26].

Core Viewpoint - Macquarie has raised Alibaba's target price by 3% from HKD 176.3 to HKD 182.3, maintaining an "Outperform" rating and recommending buying on dips [1] Financial Projections - The adjusted EBITA forecasts for the fiscal years ending March 2026 and 2027 have been lowered by 1% and 2% respectively, reflecting the performance of segment profit margins [1]

Investment Rating - The report maintains a "Buy" rating for Tencent with a target price of HKD 614.34 [6] Core Insights - Tencent's 1Q revenue grew by 13% year-on-year, exceeding consensus expectations by 2.5%. The adjusted net profit increased by 22% year-on-year, also surpassing expectations by 2.5% [1][4] - The growth in the gaming sector is expected to remain robust despite high base effects in the upcoming quarters, driven by the long-term operation of Tencent's games and the expansion of WeChat's mini-store [1][4] - The advertising business saw a significant increase, with 1Q advertising revenue growing by 20.2% year-on-year, and WeChat's mini-store advertising consumption increasing nearly fourfold from February to April [2][4] Revenue and Profitability - For 2025, Tencent's revenue is projected to reach RMB 735.52 billion, with a year-on-year growth rate of 11.4%. The adjusted net profit is expected to be RMB 262.69 billion, reflecting a growth of 17.95% [5][30] - The gross profit margin for 1Q was reported at 55.8%, indicating a year-on-year improvement [31] Business Segments - The value-added services segment, which includes gaming, saw a 17% year-on-year increase in revenue, with domestic game revenue growing by 24% [3][31] - The advertising segment's revenue growth was driven by a 60% increase in video account revenue, highlighting the effectiveness of Tencent's advertising strategies [2][31] Future Outlook - The report anticipates continued growth in Tencent's revenue and adjusted net profit for 2026 and 2027, with slight adjustments to previous forecasts due to changes in capital expenditure and depreciation rates [4][30] - The introduction of AI capabilities and the establishment of an independent e-commerce department within WeChat are expected to further enhance Tencent's growth potential [10][12]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of 614.34 HKD [6][7]. Core Insights - The company's revenue for Q1 increased by 13% year-on-year, exceeding consensus expectations by 2.5%. The adjusted net profit grew by 22% year-on-year, also surpassing expectations by 2.5% [1]. - The advertising revenue in Q1 grew by 20.2% year-on-year, significantly above consensus expectations, with a notable 60% increase in revenue from video accounts [2]. - Domestic game revenue rose by 24% year-on-year, with a strong pipeline of new games set to launch [3]. - The company has adjusted its revenue forecasts for 2025-2027 upwards by 0.6%, 0.5%, and 0.5% respectively, driven by the growth of the WeChat mini-store and AI product integration [4][31]. Revenue and Profitability - The projected revenue for 2025 is 735.52 billion RMB, with a year-on-year growth rate of 11.4%. The adjusted net profit for 2025 is forecasted to be 262.69 billion RMB, reflecting a growth of 17.95% [5][31]. - The gross profit margin for Q1 was reported at 55.8%, indicating a healthy profitability trend [12]. Business Segments - The value-added services segment, which includes gaming, saw a 17% increase in revenue, while the online advertising segment experienced a 20.2% growth [5][32]. - The WeChat mini-store has shown significant growth potential, with advertising consumption increasing nearly fourfold from February to April [2][13]. Future Outlook - The company is expected to benefit from the continued expansion of its WeChat mini-store and the integration of AI capabilities, which are anticipated to enhance user engagement and drive revenue growth [4][18]. - The upcoming launch of new games, particularly the mobile version of "Valorant," is expected to attract a substantial user base and contribute to revenue growth [22][23].