Deutsche Bank Markets Research Rating Buy Company Baidu Dive 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." Search business update: confident in mobile dominance despite verticals We believe that Baidu continues to command a 70% search market share in terms of traffic. While the PC-to-mobile transition has posed challenges, it also presents unprecedented opportunities, demanding aggressive advances in technology. Looking forward to next 3-5 years, both voice search and image search should contribute 50% of queries, likely explaining why Baidu is burrowing further into cutting-edge R&D to maintain its leading position. 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 grow at a similar pace as last year and TAC cost as % of rev should also be in 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. 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 from our ongoing dbAcces