Earnings Report Preview | BIDU-SW Core Business Expected to Recover, BIDU-SW Cloud to Grow 20% YoY

China CITIC Securities expects BIDU-SW's Q1 advertising revenue to rebound, with a stable profit margin.

It is expected that the overall revenue in Q1 2023 will be RMB 29.3 billion (+3%) and the Non-GAAP net profit will be RMB 4.7 billion (corresponding to a profit margin of 16%). The improvement in revenue and profit margin mainly comes from the steady recovery of advertising and cloud.

Western Securities predicts that BIDU-SW's Q1 revenue will be RMB 30.484 billion, YoY+7.3%, and the Non-GAAP net profit attributable to the parent company will be RMB 4.738 billion, YoY+22.1%.

Sub-business forecast

China CITIC Securities predicts that BIDU-SW's core revenue will increase by 4% YoY to RMB 22.1 billion, of which advertising revenue will be RMB 15.7 billion (+1%), mainly reflecting the improvement of online advertising business brought by economic recovery.

In terms of profit, it is expected that the Non-GAAP operating profit margin of BIDU-SW core will be 21%, and the Non-GAAP net profit margin will be 18%, continuing to steadily improve.

China CITIC Securities predicts that BIDU-SW's cloud computing business will grow by 6% to RMB 4.3 billion in Q1.

China CITIC Securities predicts that BIDU-SW's non-advertising revenue in Q1 will be RMB 6.4 billion (+11%), reflecting the delivery of cloud projects and the improvement of other businesses.

BIDU-SW Cloud and AI

China CITIC Securities stated that BIDU-SW's cloud delivery in the short term basically meets expectations, and it is expected to achieve excess growth in 2023.

In terms of profit, considering the release of Wenxin Yiyuan and the deployment concentrated in the second quarter, it is expected that the incremental cost of cloud business will begin to appear in the second quarter, but we expect the decrease in operating profit margin to be around 1%.

In addition, BIDU-SW's overall profit margin for the intelligent transportation business with first-mover advantage is continuing to improve, and high-quality growth is expected to continue.

China CITIC Securities predicts that BIDU-SW's cloud is still expected to achieve a growth rate of 20% in 2023, and the contribution of Wenxin Yiyuan to the cloud is expected to gradually appear from the end of this year to next year.

The continuous iteration and upgrading of Wenxin Yiyuan will open up long-term space for the company and is expected to gradually obtain orders and revenue from the end of this year to early next year.

Investment advice

China CITIC Securities predicts that BIDU-SW's revenue for 2023-2025 will be RMB 131/140.5/149.5 billion, and the Non-GAAP net profit will be RMB 22.1/25.6/27.9 billion.

Based on SOTP, BIDU-SW is given a 2023 PE (Non-GAAP) of 18x, maintaining a target price of HKD 153 and a target price of USD 156, and continuing to maintain a "buy" rating.

Western Securities predicts that BIDU-SW's Non-GAAP net profit attributable to the parent company in 2023/2024/2025 will be RMB 22.108/25.486/29.03 billion, YoY+7%/+15%/+14%. Maintain a "buy" rating.