Equity Research

Company Report
Baidu Rating OUTPERFORM
AI Cloud leads growth 13 August 2021

Zeping Zhao, CFA

Baidu’s 2Q21 financial results were ahead of market consensus, with total revenue (852) 2683 3212
reached RMB 31.4bn (+20.4% YoY), and non-GAAP net margin of 17.1%. Baidu zeping.zhao@icbci.icbc.com.cn
App MAU reached 580mn (+9% YoY), showing its resilient growth. While
advertisement business continued to see recovery, the non-advertisement businesses Kenneth Zhang
within Baidu Core were the actual revenue drivers where its AI cloud grew 71% YoY. (852) 2683 3965
The management estimated that the costs of robotaxi will match with traditional taxi kenneth.zhang@icbci.icbc.com.cn
by the year of 2025 and potentially to generate meaningful revenue afterwards. For
Sector Internet
3Q21, we project Baidu’s total revenue to grow 14.7% YoY, to reflect the resurgences
of confirmed covid cases in China and increased regulation pressure for industries Key Data
such as education. Maintain OUTPERFORM and revise TP to USD 212.00. Ticker BIDU.US
Price (12 Aug) USD 159.63
2Q21 financial performance in line. Baidu announced its 2Q21 financial results, Target Price USD 212.00
with total revenue reached RMB 31.4bn (+20.4% YoY), located in the middle of its Upside 32.8%
previous guidance range, and non-GAAP net margin of 17.1% (Baidu Core 24.7%). 52W High USD 354.82
While advertisement business continued to see recovery as macro economy recovered, 52W Low USD 115.59
the non-advertisement businesses within Baidu Core were the actual revenue drivers, Mkt. Cap. (USD mn) 56,446
Total Issued Share (mn) 284
including AI cloud (+71% YoY). The competitive edge of Baidu's cloud service lies in Avg. 3mths t/o (USD mn) 896
its capability in meeting clients demand and business scenarios through the application
of AI. We expect cloud’s segmental margin improvement as Baidu accumulates more Shareholdings Structure
BlackRock Inc 4.69%
experience in more verticals. Notably, Baidu recently signed agreement with Geely to Vanguard Group 3.47%
provide private cloud solution and other cloud applications to enable the company to PRIMECAP Management Co 3.35%
optimize manufacturing and supplier/consumer management.
Price performance
Solid development progress on frontier technology. The future growth driver for US$ mn
400 18
Baidu lies in the development of intelligent driving through iterations of Apollo and its 350 15
300
applications. ASD has started to generate revenue and installations of Duer OS for 250 12

auto has reached ~1.8mn as of 2Q21, though their respective impact on financials were 200
150
9
6
limited. The management also highlighted that its robot taxi’s costs per mile has 100
50 3

further reduced by 60% as Apollo’s 5th generation robotaxi introduced in June. 0

08/20 10/20 12/20 02/21 04/21 06/21 08/21
0

Management estimated that the costs of robotaxi will match with traditional taxi by the Volu me (RHS )
NASDAQ ( reba se d) ( LHS)
Baid u.com (L HS)

year of 2025 and potentially to generate meaningful revenue afterwards. Apollo Go % 1m 3m 6m

ride hailing also has expanded into its 4th city-Guangzhou, and has in total provided BIDU.US (13.5) (11.0) (49.0)
NASDAQ 0.9 12.9 5.1
47K trips to the public. We believe the intelligent driving market in China has great Source: Bloomberg, ICBCI Research
potential and Baidu currently possesses comprehensive product portfolio in addressing
this opportunity, though short term financial contribution to the company is rather
limited.
Forecasts and valuation. In 3Q21, we estimate Baidu’s revenue to grow 14.7% YoY
to RMB 32.4bn, to reflect the current resurgences of covid cases in China and recent
increased regulation pressure for some sectors including education. Meanwhile, as
revenue contribution from online marketing drops and there is still no clear time table
for the turnaround of its new businesses, we expect Baidu 3Q21 net margin
performance to drop on a YoY basis. We maintain OUTPERFORM rating and revise
TP to USD 212.00.
Investment Summary
Year ended Dec 31 2018 2019 2020 2021E 2022E
Revenue (RMB mn) 102,277 107,413 107,074 126,660 144,373
Change (%) 27.8 5.0 (0.3) 18.3 14.0
Non-GAAP gross profit (RMB mn) 50,757 44,890 52,277 64,545 74,040
Non-GAAP GPM (%) 49.6 41.8 48.8 51.0 51.3
Non-GAAP op. profit (RMB mn) 20,425 12,800 21,733 25,744 30,580
Non-GAAP OPM (%) 20.0 11.9 20.3 20.3 21.2
Non-GAAP net profit (RMB mn) 23,976 18,182 22,020 23,208 26,069
Change (%) 39.0 (24.2) 21.1 5.4 12.3
Non-GAAP NPM (%) 23.4 16.9 20.6 18.3 18.1
Non-GAAP EPADS (USD) 9.91 7.49 9.87 10.26 11.50
P/E 16.1 21.3 16.2 15.6 13.9
Source: Company data, ICBCI Research

For further product information please contact ICBC International Research Limited at (852) 2683 3888
Baidu - 13 August 2021 Please read the important notice on last page 1
 Equity Research

Valuation
Using a SOTP valuation, we value Baidu at USD 74.0bn and set the target price of
USD 212.00. We assign the separate valuations on Baidu Core’s marketing and cloud
businesses. Our assumptions include:
 Core marketing: On the marketing side, we estimated the segment’s
non-GAAP net profit to reach RMB 35.6bn in 2022. Based on 7.0x 2022E
non-GAAP P/E, the segment is valued at USD 38.3bn.
 Cloud: Valued at USD 20.4bn, based on 6.0x 2022E P/S, Baidu Cloud’s 2022E
revenue of RMB 22.1bn.
 Intelligent Driving: Considering the valuation of various listed independent
Chinese smart / renewable energy car companies, we assign the valuation of
USD 8bn for Baidu’s intelligent driving business, including autonomous driving,
smart transportation and the JV with Geely.
 iQIYI: Valued at USD 6.4bn, based on 1.2x 2022E P/S, iQIYI’s 2022E revenue
of RMB 34.7bn and Baidu’s 56.7% stakes in iQIYI.
 Other investments: Valued at USD 5bn, including Baidu’s holding in Trip.com,
China Unicom and other listed / non-listed companies.
We apply 15% conglomerate discount for the non-core segments (iQIYI and other
investments) in the SOTP valuation. Our target price of USD 212.00 implies 18.4x
2022E non-GAAP P/E.

Exhibit: Summary of quarterly results and forecasts (RMB mn)

Year ended Dec 31 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21E 4Q21E
Total revenue 22,545 26,034 28,232 30,263 28,134 31,350 32,390 34,786
Online marketing 14,243 17,688 20,201 20,708 18,094 20,828 22,390 23,286
Other services 8,302 8,346 8,031 9,555 10,040 10,522 10,000 11,500
Cost of revenue (14,687) (13,134) (12,815) (14,522) (15,002) (15,897) (14,899) (16,697)
Gross profit 7,858 12,900 15,417 15,741 13,132 15,453 17,491 18,089
Non-GAAP gross profit 7,939 13,008 15,498 15,832 13,211 15,565 17,586 18,184
SG&A expense (3,852) (4,417) (4,700) (5,094) (5,245) (5,707) (5,506) (6,087)
R&D expense (4,443) (4,839) (4,561) (5,670) (5,098) (6,283) (6,154) (6,192)
Operating profit (437) 3,644 6,156 4,977 2,789 3,463 5,830 5,809
Non-GAAP operating profit 1,437 5,605 7,636 7,055 4,362 5,653 7,727 8,002
Interest income, net 690 492 542 531 410 497 650 700
Other income, net 181 (1,732) 9,169 499 (151) (4) 500 500
Profit before tax (1,480) 4,010 15,050 5,510 26,566 1,033 5,980 6,009
Income tax (198) (1,222) (1,618) (1,026) (1,534) (2,197) (1,196) (1,202)
Net profit 41 3,579 13,678 5,174 25,653 (583) 5,384 5,607
Non-GAAP net profit 3,082 5,082 6,988 6,868 4,297 5,359 6,606 6,946
Non-GAAP diluted EPS (RMB) 8.87 14.73 20.35 20.09 12.38 15.44 19.00 19.95
Non-GAAP diluted EPS (USD) 1.25 2.08 3.00 3.08 1.89 2.38 2.92 3.07
Source: Company data, ICBCI Research

Baidu - 13 August 2021 2

 Equity Research

Exhibit: Income statement (RMB mn)

Year ended Dec 31 2018 2019 2020 2021E 2022E
Total revenue 102,277 107,413 107,074 126,660 144,373
Cost of sales (51,744) (62,850) (55,158) (62,496) (70,743)
Gross profit 50,533 44,563 51,916 64,164 73,630
SG&A expense (19,231) (19,910) (18,063) (22,546) (24,832)
R&D expense (15,772) (18,346) (19,513) (23,727) (27,142)
Operating profit 15,530 6,307 14,340 17,891 21,656
Interest income, net 2,568 3,100 2,255 2,257 3,000
Other income, net 9,428 1,064 8,117 845 2,500
Profit before tax 27,325 (340) 23,090 39,588 24,156
Income tax (4,743) (1,948) (4,064) (6,129) (4,590)
Net profit 27,573 2,057 22,472 36,062 23,069
Non-GAAP net profit 23,976 18,182 22,020 23,208 26,069
Non-GAAP EPADS (RMB) 68.17 52.12 64.41 66.66 74.73
Non-GAAP EPADS (USD) 9.91 7.49 9.87 10.26 11.50
Source: Company data, ICBCI Research

Exhibit: Balance sheet (RMB mn)

Year ended Dec 31 2018 2019 2020 2021E 2022E
Cash and cash equivalents 29,827 34,439 36,540 72,690 87,072
Accounts receivables 6,015 7,416 8,668 10,254 11,687
Other current assets 119,252 123,707 138,134 152,835 170,977
Total current assets 155,094 165,562 183,342 235,779 269,736
Fixed assets 17,903 18,311 17,508 17,900 18,852
Intangible assets & Goodwill 27,717 26,137 30,705 29,027 29,597
Other long -term assets 96,852 91,306 101,153 98,349 105,349
Total non-current assets 142,472 135,754 149,366 145,276 153,798
Total assets 297,566 301,316 332,708 381,055 423,534
Accounts payables 35,381 32,701 36,716 38,716 40,716
Short term debt 3,046 2,618 3,016 5,016 7,016
Other current liabilities 18,426 22,061 28,653 23,636 25,724
Total current liabilities 56,853 57,380 68,385 67,368 73,456
Long-term borrowings 50,191 45,894 48,408 56,408 64,408
Other long term liabilities 14,770 25,227 24,072 24,572 25,072
Total non-current liabilities 64,961 71,121 72,480 80,980 89,480
Total Liabilities 121,814 128,501 140,865 148,348 162,936
Total shareholder's equity 175,752 172,815 191,843 232,707 260,598
Total liabilities and shareholder's equity 297,566 301,316 332,708 381,055 423,534
Source: Company data, ICBCI Research

Exhibit: Cash-flow statement (RMB mn)

Year ended Dec 31 2018 2019 2020 2021E 2022E
Net income 22,582 (2,288) 19,026 33,460 19,566
Share-based compensation 4,676 5,626 6,729 7,405 8,324
Depreciation and amortization 16,187 19,161 5,449 4,877 4,877
Change in working capital 3,281 (6,687) 1,133 523 13
Other operating cash flows 11,823 10,358 10,889 33,960 20,066
Cash flow from operations 35,967 28,458 24,200 46,764 33,281
Capex (8,772) (6,428) (5,084) (5,592) (6,152)
Other investing cash flows (25,688) (13,546) (22,468) (17,499) (22,747)
Cash flow from investing (34,460) (19,974) (27,552) (23,091) (28,899)
Cash flow from financing 15,082 (3,873) 5,665 12,477 10,000
Net increase in cash 18,491 4,612 2,101 36,150 14,382
Cash at beginning of the year 11,336 29,827 34,439 36,540 72,690
Cash at end of the year 29,827 34,439 36,540 72,690 87,072
Source: Company data, ICBCI Research

Baidu - 13 August 2021 3

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Exhibit: Comp Table

Target
US listed Ticker Price MktCap EV Last Price 52-Wk Range (USD) Adjusted EPS (USD) PE EV/Sales PS
companies (USD) Rating (USD mn) (USD mn) (USD) High Low 20 21E 22E 20 21E 22E 20 21E 22E 20 21E 22E
Alibaba BABA US 288.5 OUTPERFORM 520,966 453,364 191.7 319.3 179.7 7.5 10.1 11.4 25.6 19.0 16.8 6.0 4.3 3.3 6.7 4.8 3.6
Baidu BIDU US 212.0 OUTPERFORM 56,446 45,658 159.6 354.8 115.6 9.9 10.5 11.7 16.2 15.2 13.6 2.9 2.5 2.2 3.4 2.9 2.5
JD.com JD US 115.0 OUTPERFORM 109,955 100,099 70.5 108.3 60.9 1.6 2.1 2.8 44.3 33.4 25.0 0.9 0.8 0.6 1.0 0.7 0.6
Pinduoduo PDD US 175.0 OUTPERFORM 109,563 98,800 87.4 212.6 69.9 -0.4 -0.9 0.2 -229.3 -99.3 388.5 12.3 5.5 3.9 13.7 6.1 4.3
NetEase NTES US 135.0 OUTPERFORM 61,730 51,770 92.0 134.3 82.5 20.3 22.9 5.1 4.5 4.0 18.0 4.8 4.0 3.4 5.4 4.5 3.9
Trip.com Group TCOM US 42.0 NEUTRAL 15,293 17,138 24.0 45.2 23.6 -0.2 0.6 1.7 -125.7 39.2 14.4 6.4 4.7 3.1 5.4 4.1 2.8
Bilibili BILI US 110.9 OUTPERFORM 30,726 28,857 79.9 157.7 40.4 -1.1 -0.9 -0.1 -71.5 -90.6 -1007.1 16.4 10.5 7.4 16.9 10.3 7.1
Vipshop VIPS US 29.0 OUTPERFORM 11,456 9,087 16.7 46.0 14.9 1.3 1.7 2.1 13.1 10.0 8.0 0.6 0.6 0.5 0.7 0.6 0.5
Weibo WB US 60.0 OUTPERFORM 12,461 11,561 54.7 64.7 32.5 2.0 2.7 3.5 27.0 20.4 15.8 6.8 5.6 4.8 7.5 5.8 5.2
Momo MOMO US 17.5 OUTPERFORM 2,535 1,549 12.3 21.2 11.2 1.7 1.9 2.6 7.3 6.3 4.8 0.1 0.1 0.1 1.1 1.1 1.0
YY YY US 130.0 OUTPERFORM 3,680 -63 46.4 148.9 45.3 3.8 6.1 8.2 12.1 7.5 5.6 0.0 0.0 0.0 0.9 1.3 1.0
Huya HUYA US N/A N/A 2,433 820 10.3 36.3 10.3 0.8 0.5 0.9 12.6 20.1 10.9 0.5 0.4 0.4 1.4 1.3 1.1
Douyu DOYU US N/A N/A 1,116 -32 3.4 20.5 3.4 0.3 -0.1 0.2 11.4 N/A 19.9 N/A N/A N/A 0.8 0.7 0.7
Autohome ATHM US N/A N/A 5,037 3,008 39.9 147.7 39.9 4.6 4.2 4.6 8.7 9.4 8.7 2.2 2.3 2.1 3.8 3.8 3.5
iQiyi IQ US N/A N/A 7,475 9,070 9.5 29.0 9.1 -1.3 -1.0 -0.4 N/A N/A N/A 2.0 1.8 1.6 1.6 1.5 1.4
Tencent Music TME US N/A N/A 17,010 15,977 10.1 32.2 9.5 0.5 0.4 0.5 22.0 26.2 21.1 3.5 3.0 2.6 3.8 3.2 2.7
Target
HK listed Price MktCap EV Last Price 52-Wk Range (HKD Adjusted EPS (HKD) PE EV/Sales PS
companies Ticker (HKD) Rating (HKD mn) (HKD mn) (HKD) High Low 20 21E 22E 20 21E 22E 20 21E 22E 20 21E 22E
Tencent 700 HK 725.0 OUTPERFORM 4,502,378 4,649,869 469.0 775.5 422.0 14.3 17.3 21.9 32.8 27.1 21.4 9.6 7.9 6.6 7.8 6.4 5.3
Alibaba 9988 HK 280.2 OUTPERFORM 3,994,636 3,469,614 183.7 309.4 174.5 7.5 10.1 11.4 24.6 18.3 16.1 6.0 4.3 3.3 6.6 4.7 3.6
Meituan 3690 HK 375.0 OUTPERFORM 1,434,351 1,401,041 234.0 460.0 190.4 0.63 -1.17 1.62 374.4 -199.2 144.3 12.2 7.9 5.7 10.5 6.5 4.8
JD.com 9618 HK 317.8 OUTPERFORM 852,453 775,824 273.4 422.8 238.0 1.59 2.11 2.83 44.3 33.4 25.0 0.9 0.8 0.6 1.0 0.7 0.6
Kuaishou 1024 HK 370.0 OUTPERFORM 333,436 275,156 80.2 417.8 78.6 N/A -1.26 3.90 N/A -63.56 20.56 4.7 3.2 2.1 4.7 3.2 2.3
NetEase 9999 HK 209.3 OUTPERFORM 475,054 397,620 141.6 207.8 126.1 5.37 6.38 7.35 26.4 22.2 19.3 4.8 4.0 3.4 5.4 4.4 3.8
Bilibili 9626 HK 861.4 OUTPERFORM 233,116 218,585 606.5 1052.0 573.0 N/A -14.00 -12.34 N/A -43.3 -49.1 6.4 4.7 3.1 N/A 10.0 6.8
Tongcheng Elong 780 HK 20.5 OUTPERFORM 34,461 27,401 15.6 21.4 12.5 0.54 0.78 1.20 28.9 19.9 13.0 4.5 3.1 2.4 4.8 3.3 2.6
NetDragon 777 HK 24.5 OUTPERFORM 8,860 5,518 15.9 25.2 15.0 1.63 2.57 2.93 9.8 6.2 5.4 0.7 0.7 0.6 1.2 1.1 0.9
XD Inc. 2400 HK 49.5 NEUTRAL 22,004 19,740 45.8 114.5 32.7 0.03 0.14 0.78 1804.8 331.0 59.0 5.3 5.4 4.2 5.9 6.1 4.6
Autohome 2518 HK N/A N/A 39,252 23,519 77.8 199.6 77.7 N/A 19.82 21.79 N/A 3.9 3.6 N/A 2.2 2.1 N/A 3.8 3.5
Kingsoft 3888 HK N/A N/A 50,997 36,701 37.2 79.5 29.2 1.04 0.87 1.40 35.6 42.6 26.5 5.4 4.3 3.5 7.6 6.0 4.8
IGG 799 HK N/A N/A 9,325 6,960 7.8 14.7 6.9 1.27 1.03 1.14 6.1 7.6 6.8 1.3 1.1 1.0 1.7 1.4 1.4
Maoyan 1896 HK N/A N/A 11,458 9,674 10.0 19.3 9.0 -0.44 0.85 1.09 -22.9 11.8 9.2 6.1 1.9 1.6 7.2 2.3 1.9
China Literature 772 HK N/A N/A 75,681 73,124 74.1 95.8 45.6 -0.77 1.60 2.07 N/A 46.4 35.7 7.5 5.9 5.1 7.8 6.1 5.3
Mobvista 1860 HK N/A N/A 11,825 11,665 7.4 11.4 3.2 0.29 0.11 0.22 24.9 67.5 32.6 2.5 2.2 1.7 2.5 2.2 1.7
Razer 1337 HK N/A N/A 16,670 12,128 1.9 3.4 1.4 0.00 0.06 0.09 N/A 34.7 20.2 1.4 1.1 0.9 1.9 1.5 1.2
Source: Bloomberg, ICBCI Research

Baidu - 13 August 2021 4

Sales Research
Telephone: (852) 2683 3888 Fax: (852) 2683 3881 Telephone: (852) 2683 3888 Fax: (852) 2683 3222

Important Disclosures
ICBCI Ratings
OUTPERFORM : Total stock return (including dividends) expected to exceed relevant market index by more than 20% over next 12 months
NEUTRAL : Total stock return (including dividends) expected to perform in line with relevant market index to within +/-20% over next 12
months
UNDERPERFORM : Total stock return (including dividends) expected to trail relevant market index by more than 20% over next 12 months
UNDER REVIEW : Analyst currently does not have adequate conviction about total stock return (including dividends) relative to relevant market index
over next 12 months

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Baidu, Trip.com, Meituan, Kuaishou within the past 12 months
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