King's Financial News: Bocom Intl releases a preview of Baidu (09888) Q3 performance, expecting a 0.8% year-on-year decrease in Baidu's core revenue, down from the previous adjustment of 2.6%, mainly due to pressure on advertising business growth. Baidu's (including IQiyi) revenue is expected to decrease by 3% year-on-year, with a net margin adjusted to 19%.

The bank points out that Baidu's core business revenue in Q3 is under further pressure. 1) Advertising: The bank expects revenue to drop by 4.4% year-on-year, down from the previous adjustment of 3.6%, mainly due to some industries having weak demand from advertisers and the AI search transformation on the user side yet to start large-scale monetization. 2) Cloud: Maintaining a double-digit growth expectation, down from the previous adjustment of 2%, due to organizational restructuring in the cloud storage business. 3) Profit: Basic maintenance of adjusted operational profit margin forecast at 24.8%.

The bank forecasts a 2% year-on-year decrease in advertising revenue in 2024 (originally predicted to remain flat), while maintaining a full-year double-digit growth projection for the cloud business. Maintaining the expectation of core business stable profit margin brought by operating leverage optimization. The bank adjusts the valuation method to a PE ratio valuation, based on a 10x PE ratio in 2025, adjusting the target price to $111/108 HKD, corresponding to an 11x PE ratio in 2024. The current price corresponds to an 8.9x PE ratio in 2024, at historically low levels, suggesting attention to product breakthroughs brought about by AI search transformation and maintaining a buy recommendation.