2022Q1 driven by smart cloud, the company's revenue is basically in line with expectations, thanks to iQIYI, Inc. and Baidu, Inc. core effective operation, the company's overall Non-GAAP net profit exceeded expectations. Since 2021, the development of antitrust and regulation of the Internet, Sino-US audit manuscripts and other factors have led to the pressure on the valuation of the Internet industry. Since April, macro headwinds such as the spread of the epidemic have increased the uncertainty of the company's second-quarter performance. Looking forward to the second half of the year, we expect the above repressive factors to be gradually alleviated. For Baidu, Inc., we judge that the company's advertising business is expected to gradually stabilize in the second half of the year. Baidu, Inc. intelligent cloud, as the company's second growth curve, continues to expand in intelligent transportation, industrial Internet and other areas, with growth higher than the industry average. Although it faces quarterly fluctuations, its overall health is still good. Intelligent driving is also steadily advancing, Apollo obtained Dongfeng car ordering letter, radish fast run expanded to Wuzhen and Wuhan, and the commercialization process continued to advance. We continue to maintain the company's "buy" rating and are optimistic about the investment opportunities where the company's fundamentals improve after the industry recovers.

Performance Overview: the epidemic has led to pressure on online advertising, and smart cloud continues to maintain high growth. In the first quarter, the company's overall income was 28.4 billion yuan (+ 1%), and the net profit of Non-GAAP was 3.9 billion yuan (- 22%). The revenue was in line with expectations and the profit exceeded expectations. From a business perspective, Baidu, Inc. 's core revenue is expected to grow by 1% to 21.4 billion yuan, of which advertising revenue is 15.7 billion yuan (- 4%), mainly due to macro headwinds caused by factors such as the spread of the local epidemic. Non-advertising revenue was 5.7 billion yuan (+ 35%), of which smart cloud revenue grew by 45%, exceeding expectations. On the profit side, the Non-GAAP operating profit margin of Baidu, Inc. core is 17%. The net profit rate of the group is 18%, and the overall Non-GAAP net profit of the group is 3.9 billion yuan (- 10%). The profit growth is mainly due to the relatively cautious operation of Baidu, Inc. core and the substantial improvement in iQIYI, Inc. 's profits.

Online advertising: it is expected to improve quarter by quarter in the second half of the year, with a higher correlation with the macro-economy in the medium and long term. Baidu, Inc. 's core advertising revenue fell 4% in the first quarter, mainly due to macroeconomic headwinds caused by the spread of the domestic epidemic. Taking into account the current domestic local epidemic is still facing greater pressure, we expect Baidu, Inc. core advertising revenue in the second quarter will continue to be under pressure, the growth rate is weaker than the first quarter. However, from the operational level, we can see that Baidu, Inc. APP's MAU reached 632 million in March in the first quarter, with 83% of daily logged-in users, and user traffic remained stable. In addition, the company continues to improve and enrich its mobile ecological capabilities. In March, Baidu Intelligent Mini Program had 508 million monthly active users, an increase of 22% over the same period last year, and the number of Baidu, Inc. Mini Program increased by 26% over the same period last year. As an important carrier of Baidu, Inc. 's advertising transformation, Baidu, Inc. 's hosting page revenue increased by 31%, accounting for 47% of Baidu, Inc. 's advertising revenue, indicating the company's positive progress in the field of mobile ecology. In the medium and long term, we expect Baidu, Inc. 's advertising revenue to improve gradually in the second half of the year under the assumption that the local epidemic is gradually alleviating. Considering the relative dispersion of the company's advertising industry and the SMB-based advertiser structure, we expect that the company's medium-and long-term advertising revenue will have a higher correlation with the macro-economy.

Baidu, Inc. Intelligent Cloud: the income in the first quarter is growing rapidly, and the annual acceleration is expected to be higher than the industry average. Baidu, Inc. Intelligent Cloud achieved 45% growth in the first quarter, exceeding market expectations. Although the delivery of the project was affected to a certain extent in the first half of the year due to local outbreaks. We believe that with the gradual easing of the epidemic, the delivery of the company's existing orders will gradually resume, so at the quarterly level, the subsequent growth rate may face some fluctuations, but from the perspective of the whole year, we believe that Baidu Cloud will still achieve above-average growth in the industry and further develop its advantages in intelligent transportation and enterprise customers. In the first quarter, the contract amount of Baidu, Inc. 's intelligent transportation business exceeded 10 million yuan in 41 cities, an increase of 25 over the same period last year. At the same time, in the field of industrial Internet, Baidu, Inc. Intelligent Cloud Kaiwu was selected as a national double cross-platform. It further shows the advantages of Baidu, Inc. intelligent cloud in the field of government and enterprises.

Intelligent driving: access to Dongfeng car fixed point letter, the steady progress of commercialization. In April 2022, Baidu, Inc. obtained the order letter of Dongfeng Automobile and adopted Apollo Self Driving (including ANP, AVP, HD map and other modules) in one of Dongfeng Motor's best-selling models to further expand the cooperation scope of Baidu, Inc. Apollo. The total order increased to 100 billion yuan from 8 billion yuan in the previous quarter. In the field of Robotaxi, turnip Express has obtained the self-driving master's unmanned license to realize the unmanned self-driving travel service on the open road in Yizhuang. Radish Fast run achieved 196, 000 unmanned bikes in the first quarter, with an income of about 6 million yuan in a single quarter calculated at 30 yuan per order, with steady progress in commercialization. At the same time, the Jidu automotive engineering team has started mass production mold casting work, and the first auto robot mass production car has officially moved from model design to the preparatory stage of mass production. According to Xia Yiping, CEO of Jidu Automobile, the first model will be released on June 8. Smart driving as Baidu, Inc. 's long-term third growth curve, the positive development of the above business will open up more growth space for the company and provide the company with long-term valuation flexibility.

Other businesses: iQIYI, Inc. made a quarterly profit and made steady progress in his long-term growth plan. IQIYI, Inc. 's income is 7.3 billion yuan (- 9%), of which 101 million are subscription members. thanks to the decline in content costs and measures such as reducing costs and increasing efficiency, the company has made a profit of 94 million yuan at the level of operating profits. in the medium term, we expect iQIYI, Inc. to still focus on reducing costs and increasing efficiency. strive to achieve stable profits. At other business levels, according to the company's earnings exchange meeting, 30 per cent of Baidu, Inc. 's core non-marketing business is non-cloud computing, showing a strong performance of autopilot and other long-term growth plans. In the medium and long term, we believe that Baidu, Inc. 's growth in smart devices, chips and other areas is worthy of attention, at the same time, the promotion of independent financing will also accelerate the market awareness of the value of the above business.

Risk factors: the risk of continued tightening of domestic Internet regulatory policy; the risk of pressure on the advertising industry due to the evolution of the epidemic; the risk of stock price fluctuations caused by the failure of YY mergers and acquisitions; performance fluctuations caused by organizational and personnel reforms; iQIYI, Inc. 's increased losses; AI, cloud computing and autopilot commercialization promotion speed is not up to expectations.

Investment advice: prior to the promotion of anti-monopoly and normative Internet development, Sino-US audit manuscripts and so on, the valuation of the Internet plate was under pressure, and Baidu, Inc. was also affected to a certain extent. We believe that the above repressive factors are expected to be gradually alleviated. In the short and medium term, it is expected that factors such as local outbreaks will put pressure on the overall performance in the second quarter. We expect that with the gradual improvement of the macro-economy in the second half of the year, online advertising is expected to gradually recover, and businesses such as cloud computing and smart driving will also provide some resilience to the company's overall performance. In the short term, taking into account the impact of the local epidemic and the first quarter results, we slightly adjust the company's profit forecast. It is estimated that the company's revenue in 2022-2024 will be 1274x1419,157.8 billion yuan (the original forecast is 1,27,000,000 yuan), and the net profit of Non-GAAP will be 13,28,244 billion yuan (the original forecast is 11227,243,000,000 yuan). With the continuous progress of epidemic prevention and control, if the macro-economy can stabilize and recover, the company's performance is expected to improve. Based on SOTP, we maintain the company's Hong Kong stock target price of HK $167and US stock target price of US $170. corresponding to the 2022 30X PE (Non-GAAP), we continue to maintain the company's "buy" rating.