2Q25回顾：核心会员和广告业务将在3Q25复苏

2Q25review:core membership and advertisingbusinesses to recover in 3Q25 Target PriceUS$2.70(Previous TPUS$2.25)Up/Downside17.4%Current PriceUS$2.30 iQiyi reported 2Q25results: total revenue was down by11% YoY/8% QoQ toRMB6.62bn,in line with Bloomberg consensus/our estimate;non-GAAPoperating income was RMB59mn, ahead of our estimate (RMB26mn) thanks tothe prudent opex control. Looking into 3Q25E, we expect the core membershipand online advertisingrevenue to recover by 3% and 2% QoQ respectively,supported by the quality content offeringsin summer.However,we lower ourFY25-27E total revenue forecastsby 2-3%, mainly to reflect the adjustment ofcertain non-core businesslines. That said, the recent policy issued bytheNRTAto support the TV content supply has drove online video sector valuationrerating, and may also benefit iQiyi’s business outlook. Thus, we roll forward ourvaluationwindow to FY26E and raise our target price to US$2.70 based on 18x2026E non-GAAP EPS (previous:US$2.25 on 13x 3Q25-2Q26E non-GAAPEPS). Maintain BUY. China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Ye TAO, CFAfranktao@cmbi.com.hk Membership and ad businesses to recover in 3Q25.Membershipservicesrevenue was down by9% YoYand 7% QoQ to RMB4.09bn in2Q25, primarily due to lighter contentofferings.During the period,onlineadvertising revenuedeclined by 13% YoY and 8% QoQ to RMB1.27bn in2Q25, mainly due to the soft performance-based ads, while the brand adsremainedresilient thanks to the enhanced variety show offerings.Contentdistribution revenue dropped by37% YoYand 31% QoQto RMB437mn in2Q25,mainly attributable tothe decrease in barter transactions. For 3Q25,we expect total revenue to be flattish QoQ at RMB6.62bn, mainly drivenbythe QoQrecovery of membership/online advertising revenue(+3%/+2%QoQ), but largely offset by the decline in other revenues, whichisrelated tothe adjustment of certain non-core businesses. The company has strongcontent offeringsthis summer, including Feud,Coroner's Diary and ThisThriving Land. Joanna Ma(852) 37618838joannama@cmbi.com.hk Stock Data New policy development supportsbusiness outlook.In Aug,theNRTAissued a new policy to support the audio & visual content sector, with keyinitiatives such as enhancing efficiency of TV drama content review andreducing restrictionson theno.ofepisodes per TV drama. Managementregardedsuchpolicy development as positive,and cited several benefits:1) shortening content production and review cycle, which can better aligncontent with audience interests and enhance iQiyi’s capital efficiency; 2)improvingflexibility of content creation and enriching content genres;3)strengtheningcooperation between online video platforms and traditionalTV networks, which will expanddistribution channels for qualitycontent. Investing in newopportunities.Non-GAAP OPM declined by 6pptsYoYto 1% in 2Q25, as iQiyi invested inopportunities such as micro drama andIP derivativesbusinesses. iQiyi now has a library of c.15,000 micro dramas,and plans torelease2-3 premium titlesperweek during the summer. ThecompanyalsobringsitsIPs to offline experiences likeiQiyi Land, based onan asset-light strategy. Currently,twoiQiyiLands in Yangzhou and Kaifengare in developmentwith over 50 immersive centres operating inc.30 cities. Source: FactSet Business forecasts update and valuation Valuation We valueiQiyiat US$2.70per share based on18x2026E non-GAAP EPS.Our target PEmultiple isat adiscount to the sector average(27x), due to the intense competition inChina’s video streaming sector. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the contentof thisresearch report, in whole or in part, certifiesthat with respect to the securitiesor issuer that the analyst covered in thisreport: (1) all of the viewsexpressed accurately reflect hisor her personal viewsabout the subject securitiesor issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific viewsexpressed by that analyst in thisreport.Besides, the analyst confirmsthat neither the analyst nor his/her associates(asdefined inthe code of conduct issued by The Hong Kong Securitiesand Futures Commission) (1) have dealt in or traded in the stock(s) covered in thisresearch report within 30 calendar daysprior to thedate of issue of thisreport; (2) willdeal in or trade in the stock(s) covered in thisresearch report 3 business days after the date of issue of this report; (3) serve as an officer of any of the HongKong listed companiescovered in thisreport; and (4) have any financial interestsin the Hong Kong listed companiescovered in thisreport. CMBIGM RatingsBUY : Stock with potential return of ov er 15% ov er next 12 monthsHOLD: Stock with potential return of +15% to-10% ov er next 12 monthsSELL: Stock with potential loss of ov er 10% ov er next 12 monthsNOTRATED: Stock is not rated byCMBIGM :Industry expected