EFTA01457514.pdf

Deutsche Bank Markets Research Rating Company Dive Buy Baidu 18 May 2015 Company Update Asia China Rcrouirc 9PN..mter? E'change T:cko, Price at 15 May 2015 (USD) 192.98 Technology BIDU.00 BIOU US NMS BIDU Price target - 12mth 'USD) 239.00 Software & Services 52-week range IUSDI 250.34 - 154.77 HANG SENG INDEX 27.822 dbAccess Asia Conference 2015 Highlights More on the O2O foray Baidu mgmt covered a series of topics at dbAccess Asia 2015, ranging from the competitive landscape to its ongoing O2O thrust. The co seems committed to broadening its beachhead in O2O, viewing it as a largely under-penetrated and highly fragmented market with enormous opportunity. We expect Baidu to leverage subsidies aggressively to acquire and retain customers. We believe the co has slated RMB5bn in O2O related investments in FY15. Investment scale next year will depend on "market dynamics." IPncerpricte relative Search business update: confident in mobile dominance despite verticals We believe that Baidu continues to command a 70% search market share in 210 terms of traffic. While the PC-to-mobile transition has posed challenges, it also 240 presents unprecedented opportunities, demanding aggressive advances in 200 lb technology. Looking forward to next 3-5 years, both voice search and image Ito search should contribute 50% of queries, likely explaining why Baidu is eo burrowing further into cutting-edge R&D to maintain its leading position. a 5113 11113 11114 Margin outlook. committed to further gains in O2O; SG&A to rise sharply In addition to RMB5b in O2O related investment in FY15, content cost should see SENO itfeatilatere grow at a similar pace as last year and TAC cost as % of rev should also be in Performance (%) 1m 3m 12m line with last year. With many peers paying for app preinstall this year, Baidu is likely to continue to invest in pre-installs to stay competitive. Absolute -8.4 -9.0 24.2 HANG SENG INDEX 0.7 12.7 22.4 baye the Date! dbAccess Asia TfyIT debrief call Friday. May 22, 10em ET The DB Asia TMT team will convene a global investor call to share conclusions Saws Oeuacts is* from our ongoing dbAccess Asia conference. Please join us at 10amET/3pm GMT/10pm HK time on Friday, May 22nd. Dial-in details are 800966253 for HK, 080O0288438 for UK, and (800) 309.8606 for US. Conference code is 50090305 Maintain TP and Buy Our TP of $239 is based on unchanged 1.0x PEG against FY15.17E EPS CAGR of 30%. Maintain buy. Key risks: mobile monetization weakness, heavier than expected product development and branding investments. oiecirsti And Ratio-; Year End Dec 31 2013A 2014A 2015E 2016E 2017E Sales (CNYm) 31,943.9 48052.3 67.745.9 88637.9 113.986.3 EBITDA ICNYmI 13,843.7 16.776.1 19.383.7 26129.0 32.248.1 Reported NPAT (CNYm) 10.519.0 13.187.1 15.893.2 21.727.2 27.2386 Repotted EPS FINCNYI 30.02 37.60 45.26 61.80 77.06 08 EPS FDICNY) 31.49 40.24 49.54 66.84 83.23 08 EPS growth 1%) 3.3 27.8 23.1 349 24.5 PER lx) 23.5 29.6 24.2 17.9 14.4 EVIEBITDA (x) 17.5 23.1 19.0 13.6 9.7 Sang Dent. err t a COMpleridits ee EPS • fray SSW aM echszles fromecions POMO, lantiiples and voids eiolatice• is average moons paces lot pm yes and spot prat far OATS and may yetaS. eons! Pm so , :net ma War and dos Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0117087 CONFIDENTIAL SDNY_GM_00263271 EFTA01457514