Wednesday, October 28, 2009

Analysts: Credit Suisse "underperform": details

3Q09 diluted EPS was US$2.07, up 28% QoQ, in line with
consensus. Revenue was Rmb1,278 mn, up 17% QoQ, within
guidance, but gross margin was up from 63.7% in 2Q09 to
65.4% in 3Q09. Net cash was Rmb3.96 bn in 3Q09 (or
US$16.8 net cash per ADR).

Active customers number was 216,000, up 11% YoY.
ARPU was Rmb5,918, up 25% YoY. ARPU growth rate
has been above customer growth in the past nine out of
ten quarters.

Baidu announced that it will migrate all advertising to
Phoenix Nest on 1 December and Classic P4P system
will be discontinued. Management expects the migration
to impact 4Q09 revenue negatively by 10%. We expect
December to suffer the most, and 1Q10 revenue would
be Rmb1,045 mn, down 14% QoQ or up 29% YoY.

Due to Phoenix Nest migration, we cut our 2009 diluted
EPS by 10%. Due to Phoenix Nest's positive user experience,
earnings cut in future years are lower. We lower our
DCF-based target price from US$290 to US$263, implying
33x 2010 P/E. Trading at 55x 2010E P/E, Baidu is
overvalued. We reiterate our UNDERPERFORM rating.

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