Equity valuation in China
: the case of Baidu

  • Alexander Blum (Student)

Student thesis: Master's Thesis

Abstract

This thesis intends to conduct an equity valuation of Baidu, the Chinese market leader in internet search services, in order to provide an investment recommendation relative to the share price of $189 as of 31 December 2015. After selecting appropriate valuation methodologies – considering that Baidu is operating in an Emerging Market and within the Internet Sector – the business model and market segments of Baidu are assessed. The key conclusions are that 1) Baidu’s strong growth in revenues and profits is deteriorating, due to its dependency on the maturing Chinese search market; 2) Online-to-offline Transaction Services provide strong growth opportunities, but competition from Tencent and Alibaba is fierce and operations are not profitable yet. Regarding the valuation of Baidu, the weighted scenario of the Comparable Companies Analysis implies a share price of $153 (with median values of 36 Multiples ranging from $134 to $171). By contrast, the weighted scenario of the Precedent Transaction Valuation derives a share price of $212 (with median values of 24 Multiples ranging from $201 to $231). The weighted-average of five Discounted Cash Flow scenarios amounts to a share price of $192 (ranging from $185 to $198) – respectively of $173 (ranging from $166 to $181) if considering a Holding Company discount. Overall, a target price of $183 (relative to the current share price of $189) and a “hold” recommendation are concluded. The result is in line with the $190 Target Price of JP Morgan, but considerably lower than the $248 Target Price of Goldman Sachs.
Date of Award20 Oct 2016
Original languageEnglish
Awarding Institution
  • Universidade Católica Portuguesa
SupervisorJosé Carlos Tudela Martins (Supervisor)

Designation

  • Mestrado em Finanças

Cite this

'