Daiwa expects Baidu Kunlun Chip IPO valuation to be higher than peers as AI business momentum continues

Daiwa Research Report indicates that Baidu (09888.HK) Kunlun Chip's IPO valuation is expected to be higher than its peers due to its larger revenue scale and better profitability. Currently, most of Kunlun Chip's revenue comes from external demand, with major clients including Tencent (00700.HK) and a large telecommunications operator. Management stated that chip production capacity constraints are not a concern for the company in the short term, as Kunlun Chip has ensured sufficient supply to support development over the next two years.

In terms of AI business, the firm believes that Baidu's ability to develop high-performance and low-cost lightweight models will continue to drive strong revenue growth. Although the group is expected to maintain a strong pace of AI investment this year, the employee optimization conducted at the end of last year should save operational expenses, helping to support operational efficiency.

Regarding the autonomous driving business, the firm expects Apollo Go to further accelerate its expansion in international markets, as higher fares in overseas markets can bring better unit economics; coupled with improved hardware cost efficiency, profitability is expected to improve.

The firm reiterates its "Buy" rating on Baidu, with a target price of 175 yuan, and maintains its earnings forecasts for this year and next. Recent catalysts include the listing of Kunlun Chip and details of the dividend plan for 2026