Date: 27th September 2024
Broker: UOB Kay Hian
Company Overview
Baidu Inc is a leading internet technology company in China, primarily known for its search engine services. It is also a key player in artificial intelligence (AI) and cloud computing. The company’s stock is listed on the Hong Kong Stock Exchange under the ticker 9888 HK.
Key Highlights from Baidu Cloud Intelligence Conference 2024
During the Baidu Cloud Intelligence Conference, held on 25-26 September 2024 in Beijing, Baidu introduced significant upgrades to its AI infrastructure. These include the Qianfan Large Model Platform 3.0 and AI Computing Platform 4.0, focusing on enhancing computing power, large language models (LLM), and AI-native applications.
Baidu also highlighted improvements to three major AI applications:
- Keyue (AI Customer Service) – This application now supports more sophisticated user interactions.
- Xiling (Digital Human) – Upgraded to generate hyper-realistic 3D digital humans at significantly reduced costs.
- Baidu Comate (AI Code Assistant) – A tool to improve coding efficiency, serving over 10,000 enterprise clients.
Qianfan Large Language Model 3.0
Baidu’s Qianfan LLM 3.0 focuses on enterprise-grade retrieval-augmented generation (RAG) and agent development. Baidu’s large language model processes over 700 million daily calls to its Ernie bot and has fine-tuned more than 30,000 LLMs for users, helping develop over 700,000 enterprise applications. The price of Ernie bot dropped by 90% over the past year, making AI innovation more accessible for enterprises.
Baige AI Computing Platform 4.0
Baidu’s Baige 4.0 platform addresses the full journey of AI model deployment, enhancing capacity, speed, stability, and cost-efficiency across the AI landscape. Key areas of improvement include cluster creation, model training, and inference. The platform has improved multi-core mixed training efficiency to 95%, reducing deployment times for large-scale clusters from several weeks to just one hour.
AI Cloud Revenue and Growth Outlook
Baidu’s AI Cloud revenue, currently driven by generative AI (GenAI), accounts for 9% of total AI Cloud revenue. The company expects GenAI-related revenue to continue increasing, with forecasted AI Cloud revenue growth of 14% for 2024 and 11% for 2025. This growth is supported by strong demand for graphics processing unit (GPU) cloud services and cross-selling of central processing unit (CPU) cloud services. Baidu expects AI-driven ad revenue to increase through multi-round interactions in its search products.
Financial Performance and Forecast
For the fiscal year ending December 2024, Baidu is projected to achieve revenue of RMB 136.873 billion and adjusted net profit of RMB 28.602 billion. The company’s EBITDA is forecasted to grow to RMB 30.763 billion in FY24. Baidu’s AI Cloud revenue is expected to play a significant role in these figures, supported by advanced infrastructure and enhanced monetization efforts.
UOB Kay Hian forecasts Baidu’s adjusted net profit to grow further in FY25 and FY26, reaching RMB 31.957 billion and RMB 36.398 billion, respectively.
Valuation and Recommendation
UOB Kay Hian maintains a “HOLD” rating on Baidu, with a higher target price of HK$90.00, based on an 8x 2025F PE ratio. The stock is trading at 8.2x FY25F PE, below its historical average of 14.7x. While Baidu’s advanced AI infrastructure, AI Cloud revenue, and new business synergies are promising, the broker expresses caution over the company’s declining ad revenue growth and uncertain monetization from its autonomous driving business.
Share Price Catalysts
Potential catalysts for Baidu’s share price include:
- Expansion in AI Cloud market share
- Higher monetization rates from its AI applications
- Synergies between Baidu’s core business and new initiatives, such as autonomous driving
Risks
Key risks for Baidu include:
- Slower-than-expected recovery in its advertising business due to macroeconomic challenges and intense competition
- Uncertainties surrounding the monetization of its autonomous driving unit
- Impact of the U.S. government’s ban on the supply of high-end chips to Chinese tech companies
