by winston » Thu Sep 01, 2022 9:42 am
not vested
Baidu Inc (BIDU US) / (9888 HK) - Recovery in ads while making progress across newer initiatives
Baidu’s 2QFY22 results were broadly within expectations.
Total revenue fell 5% year-on-year (YoY) to CNY29.6b, broadly in-line with consensus.
Baidu core non-GAAP operating profit margins (OPM) was strong at 22.1 (approximately +5 percentage points (ppt) YoY).
Non-GAAP net income grew 3% YoY to CNY5.54b, or >60% above consensus – we attribute this to more modest levels of SG&A and R&D expenses vs expectations.
Management has shared that ad revenue has started to recover in June, which further improved into July.
On the assumption that the macro outlook improves, Baidu search should then stand to benefit, given that the latter is highly correlated with China’s GDP growth and performance of Chinese small and medium enterprises (SMEs).
Encouragingly, we note that AI Cloud OPM has improved both YoY and quarter-on-quarter (QoQ), given management’s focus on high-quality revenue growth.
We also understand from management that the process of switching from its secondary listing to a primary one in HK should be straightforward and there are no foreseeable hurdles in achieving this.
As for Jidu, it is on track to take orders for its first passenger model later in 2022 with deliveries starting in 2023.
Looking forward, we believe that Baidu will continue to exercise cost discipline and push towards narrowing losses for its AI cloud business.
Following adjustments to our forecast, our FV drops from USD194 (BIDU US) / HKD188 (9888 HK) to USD181 (BIDU US) / HKD176 (9888 HK). BUY.
Source: OCBC
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