Goldman Sachs reiterated Buy rating for Baidu, added it to Regional Conviction Buy list

 

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Goldman Sachs reiterated a Buy rating for Chinese search engine Baidu and added it into its Regional Conviction Buy list. The bank lowered the target prices for Baidu in the next 12 months, with the US-listed stock price raised from $183 to $197 and Hong Kong shares raised from HK$179 to HK$193. 

Goldman views Baidu as one of the best positioned China Internet names pivoting to the secular Generative AI theme, with its expanding AI product suite backed by its four layers of generative AI service offerings. In the second half of 2023, Baidu is on track for steady search advertising recovery amid its high exposure to offline SME merchants, with potential margin upside from operating leverage, the bank said.

While Baidu has come out as a relative outperformer amongst the China Internet large caps YTD, now trading at 14x 12mf P/E, the bank look for 32%/62% further upside for the share price in their base/bull cases, as they expect Baidu’s earnings to remain on an upward revision cycle with space for valuation multiple expansion helped by a lineup of upward catalysts.

In the second half, the analysts expect a lineup of key catalysts including regulatory approval for large language models in general (Baidu likely in the first batch), the large scale rollout of Ernie bot/integration into Baidu search, plus early crystallization of its To-B business Ernie Qianfan, monetizing MaaS services.