Baidu delivered solid 4Q20 results, with revenue/adj. EPS +5% YoY/-24% YoY, 1%/18% above consensus. 1Q21E rev guidance beat 5%, on strong ads rebound and non-ads ramp-up. Mgmt guided non-ads with 10x TAM of ads. We believe its auto unit progress in EVs production, ASD tech enhancement (AVP, ANP) and AI Cloud would strengthen its monetization visibility and unlock valuation potential. We raised its rev by 4%/10% in FY21/22E, with higher SOTP-based TP of US$377.8 (on higher TAM and Auto re-rating).
- 4Q20 margin beat with strong 1Q21E guidance. 4Q20 revenue was RMB30.3bn, +4% YoY, 1% above consensus. Non-GAAP EPS declined 24% YoY, 18% above consensus. Baidu Core Non-GAAP OPM (35%) beat on optimized TAC and disciplined cost. 1Q21E revenue guidance came in at RMB26-28.5bn, up 15-26% YoY, with midpoint 5% above consensus.
- Intelligent Driving initiatives to unlock new TAM. We believe Baidu has transformed from search giant to Auto leader, and market eyes on its new Auto TAM. Mgmt. reiterated its confidence on non-ads potential, with 10x TAM of ads. Its auto progress strengthens commercialization visibility, as: 1) setting-up of EVs with Geely to pioneer autonomous driving, with guidance of 3-year production before new model launch; 2) smart transportation expansion into more cities (e.g. BJ, SH, etc.) after Phase I of Guangzhou Project; and 3) Apollo Self Driving (ASD) technology to enhance with HD Maps, automated valet parking (AVP), autonomous navigation pilot (ANP). We think Baidu has borne initial fruits from its auto monetization, and is well positioned to tap into China’s intelligent driving value chain by leveraging its tech edges in built-in map, cloud, miles test data and fully-fledged mobile ecosystem.
- Ads recovery to accelerate. Baidu Core accelerated to +6% YoY in 4Q20 (vs. +2% in 3Q20), and is guided to grow at 26-39% YoY in 1Q21E (largely above our estimate of 20% YoY), mainly on strong ads recovery and rising contribution of non-ads business (Cloud, hardware and AI, +52% YoY). We see high visibility for ads to see substantial rebound in expanding verticals with managed page initiatives (1/3 share) and improved targeting. Non-ads business would be next faster engine in the long run.
- Maintain BUY. To reflect auto TAM and better ads outlook, we lifted its topline by 4%/10% in FY21/22E, with higher SOTP-based TP of US$377.8 from US$173. Ads momentum continued, and auto unit would bring further upside.
