Shenwan Hongyuan Group: Upgrades BIDU-SW (09888) to "buy" rating with a target price of 172.54 Hong Kong dollars.

Shenwan Hongyuan Group has released a research report stating that they have raised their rating for BIDU-SW (09888) to a "buy" rating. The firm expects Baidu Group's overall revenue for 2025-2027 to be 128.5/133.1/141 billion RMB respectively. Using the SOTP valuation method, the overall target valuation for the group is 430.2 billion RMB, corresponding to a target price of 172.54 HKD per share. The main points of Shenwan Hongyuan Group are as follows: In the AI era, domestic AI cloud revenue is accelerating, with internet companies having their own advantages. Since 24Q3, leading cloud factories such as Alibaba and Tencent have increased their AI capital expenditure, with the capital expenditure/revenue of the top three BATs in the first three quarters of 25 exceeding 10%, close to the level of overseas cloud factories in 23. Since the beginning of 25, the low-cost large-scale models driven by open source have boosted AI cloud demand, and manufacturers such as Alibaba Cloud have seen a resurgence in growth. In comparison, internet cloud manufacturers each have their own advantages in full-stack layout, with Tencent and ByteDance excelling in AI applications, Alibaba and Baidu controlling the entire technology stack from chips to industry applications and providing end-to-end services, and Google Cloud setting the benchmark for overseas full-stack AI. Baidu continues to advance AI full-stack construction, with accelerated growth in intelligent cloud business. At the 2025 World Conference, Baidu released the Kunlun Xin M series chip, the full-modal Wenxin large model 5.0, and multiple enterprise-level intelligent body applications; in 25Q3, Baidu's AI cloud revenue was 6.2 billion RMB, with a 33% year-on-year increase in AI infrastructure revenue, a 128% increase in accelerator subscription revenue, and a 31% year-on-year increase in intelligent cloud revenue in the first three quarters of 25, reaching 19.33 billion RMB, with cloud revenue accounting for 37% of Baidu's core revenue. In terms of industry, in the first half of 25, Baidu Intelligent Cloud ranked first in the AI large model solution market and top three in the GenAI IaaS and large model public cloud markets. Self-developed AI chip Kunlun Xin is expected to enter a volume production phase. After years of technological foundation laying, large-scale implementation, and the large model adaptation stage starting in 2024, a product matrix from cloud to data center has been formed. In 2025, the Tianchi 32, 64 super nodes have been launched, and in 2026, the Tianchi 512 super node capable of supporting 512-card interconnection and trillion-parameter training will be rolled out, along with the M100 chip for large-scale inference. In 2027, the M300 chip is planned for launch to fill the gap in high-end domestic training, with the goal of achieving N-card single cluster lighting up by 2030. Commercially, Kunlun Xin has covered internet, finance, energy, and other fields entering the customer base of top clients such as China Merchants Bank and the Southern Power Grid, and has won nearly 1 billion RMB in server procurement orders from China Mobile Limited. Intelligent Driving: Lvkou Fast Run has seen a significant increase in order volume and profitability. After more than ten years of deep cultivation, Lvkou Fast Run has a complete "car, road, cloud, map" full-stack technology system. Benefiting from increased scale and significantly reduced costs, single-car profitability has turned positive. Commercialization in 2025 has significantly accelerated, with weekly order volume exceeding 250,000, leading globally, and in 25Q3, orders reached 3.1 million, exceeding 200% year-on-year growth, advancing in high average price regions overseas such as Europe and the Middle East. The firm believes that domestic Robotaxi has significant advantages over foreign competitors in terms of cost and infrastructure, and is optimistic about Baidu's layout for the next generation of "mobile living space." Risk Warning: Risks include intensified competition in the advertising industry, changes in the macroeconomic environment affecting enterprise cloud demand, increased competition among domestic cloud factories leading to uncertainty in innovative business, and regulatory risks.