1Q26E preview: Earnings face ST pressure;intact core business outlook

1Q26E preview:Earnings face ST pressure;intact core business outlook Target PriceUS$1.80(Previous TPUS$2.00)Up/Downside44.0%Current PriceUS$1.25 For1Q26E, we forecast total revenue to drop by 14% YoY and 9% QoQ toRMB6.2bn, and expect non-GAAP net loss of RMB249mn (down from netincome of RMB308mn in 1Q25). We expect greater 1Q26E net loss comparedtoBloombergconsensus (RMB152mn) mainly due to the decline inrevenuefrom content distribution and others businesses, while the core membershipbusinessshouldremainrelatively resilient in 1Q26E.Nonetheless, we expecthealthier cash flow generation and OCF of c.RMB150mn in 1Q26E, primarilydue to fewer new projects in production and more efficient content review cycle.Overall, we lower our FY26-28E total revenue forecast by 2-3% toreflecttherelatively soft content distribution and others businesses. We trim our targetpriceto US$1.80 based on 0.5x FY26E PS (previous:US$2.00 based on 18xFY26Enon-GAAPPE). Maintain BUY on resilient membershipbusinessandnew growthopportunitiessuch as AI andoverseasmarkets. China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Ye TAO, CFA(852) 3850 5226franktao@cmbi.com.hk Intact membershipbusinessoutlook; content distribution businessfaces ST pressure.Looking into 1Q26E: 1)we forecast membershiprevenue todecline by 5% YoY but recover by 2% QoQ to RMB4.2bn. TheQoQ recovery was mainly due to the solid performance of several hit titlessuch asPursuit of JadeandHow Dare You;2)we expect online advertisingrevenue to drop by 8% YoY and 10% QoQ to RMB1.2bn amidarelativelylow season; 3) we expect content distribution revenue to go down by 44%YoY and 55% QoQ to RMB352mn, as iQiyi adjusted its content distributionstrategywith less content distributed to other channels; 4) we forecastothers revenue todeclineby 48% YoY and 21% QoQ to RMB431mn. Shuyin GUO(852) 3916 3716guoshuyin@cmbi.com.hk Stock Data Positive AI progress.iQiyiofficiallylaunchedits AI agent platform, NaDouPro, in Mar 2026. Leveragingthelarge model, iQiyi’scontent productionexpertise and digital assets, NaDou Pro developed over 70 agents whichcover the full cycle of film & TV content creation (i.e.,screenwriting,directing, art design and editing etc.). iQiyi’s AITheatrehas applied NaDouPro to produce16 titles spanning films, TV series and anime. Lookingahead, content creators can use NaDou Pro to generate content anddistribute it on iQiyi, which will share revenue with the content creators. Improving cash generation.We expect non-GAAP OPM to contract by9ppt YoY to-2% in 1Q26E, mainly due to the decline in revenue from high-margin non-core business (i.e.content distribution and others businesses).That said, we expect improving cash flow generationcapabilityand positiveOCF of c.RMB150mn in 1Q26E.This is primarily due to thefewer projectsin production in 1Q26,supported byiQiyi’sstrong content pipelineready forreleaseanda more efficient content review cycle. Source: FactSet Business forecasts update and valuation Valuation We valueiQiyiat US$1.80per share, whichtranslatesinto 0.5xFY26EPS.We change ourvaluationmultiplebasis from PE to PS, as iQiyi’s investment in content, AI and overseasbusiness distorts its FY26E earnings.Our targetPSmultiple isat adiscountto thesectoraverage (4x), due to the intense competition inChina’s video streaming sector. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of thisresearch report, in whole or in part, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the codeof conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s)covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of theHongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperf