Earnings Alert: 1Q22 earnings above expectations due to tighter cost control, expect gradual recovery in 2H
- Revenue increased by 1% y-o-y to Rmb28.4bn in 1Q22
- Non-GAAP net profit fell by 10% to Rmb4.1bn, due to tighter controls on SG&A and content costs
- Revised down core earnings by 3% for FY22F on slower ad growth amid weaker macro environment ahead
- Maintain BUY with lower TPs of HK$190/US$195
1Q22 results highlights
-Revenue increased by 1% y-o-y to Rmb28.4bn in 1Q22, above market expectations
-Baidu Core’s revenue grew 4% to Rmb21bn, higher than market expectations. Revenue from iQiyi decreased 9% to Rmb7.3bn, in line.
-Segment wise, online marketing revenue from Baidu Core decreased by 4% to Rmb15.7bn and non-online marketing revenue rose 35% y-o-y to Rmb5.7bn, mainly driven by the cloud and AI-powered businesses
-Baidu AI cloud revenue increased by 45% to Rmb4,350m in 1Q22. The growth was driven by the strong momentum of the smart transportation business.
-Non-GAAP net profit declined by 10% to Rmb3.9bn, above market expectations of Rmb1.9bn. The iQiyi business turned profitable in 1Q22, mainly due to declining content costs and stricter cost control.
Outlook
-Online marketing business is sluggish due to macro weaknesses and is expected to pick up in 2H22 along with economic recovery. On the other hand, the cloud and AI businesses remained resilient, with revenue increasing by 45% y-o-y in 1Q22
-iQiyi’s turnaround is a positive sign of continuous profitability improvement in the long term
-Overall performance was satisfactory, with stronger revenue growth for Baidu Core. We believe the mid to long term growth will remain robust, supported by the cloud and AI-powered businesses
-We have revised down our non-GAAP net profit by 3% for FY22F and kept our FY23F forecast unchanged, to reflect slower ad growth amid weaker macro, which is partly offset by increased focus on cost optimisation. We maintain our BUY rating with new TPs of HK$190/US$195 based on the SOTP methodology: (1) Baidu Core: 12x on FY22F non-GAAP net profit (HK$95); (2) cloud: 5x FY22F price-to-sales (HK$52); (3) autonomous driving: (HK$34); and (4) market value of major listed investees (HK$9).