WR Hambrecht analysts James Lee and Xiaofan Zhang recently (November 16, 2006) sent a note to clients in which they initiated coverage of Chinese internet search leader Baidu.com (BIDU) with a "Buy" rating due to its advertiser-friendly model and strong growth prospects.

We are initiating coverage of Baidu.com, Inc. with a Buy rating and a 12-month price target of $130 per share. The company is the largest search engine in China, leveraging its large traffic volume to drive online advertising revenues. We believe the company is well positioned for expected positive trends, including the greater adoption of paid search by SMEs and brand advertisers, the growth of e-commerce, and the emergence of user-generated content.

In addition, Baidu's local know-how and attentive customer service create barriers for its competitors. Lastly, we believe our long-term forecast could be too conservative based on a sensitivity analysis of SME adoption rates. Our price target is based on 40x our 2008 EPS estimate of $3.15 (ex-FAS123R) plus net cash, which we believe is reasonable compared with our expected long-tem growth rate for the company.

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About Baidu:

Baidu.com, Inc. (Baidu) is a Chinese-language Internet search provider. Baidu offers a Chinese-language search platform to both users and customers. Its platform consists of the Websites and Baidu Union, which is its network of third-party Websites and software applications. The Company's services are designed to enable Internet search users to find relevant information online, including Chinese-language Web pages, news, images and multimedia files, through links provided on its Websites.

About the Author:

James Lee is a senior research analyst covering China Internet and Technology sectors. Key themes include the convergence of online and mobile Internet, the migration of advertising to the digital world, and the emergence of mobile content and online entertainment. James has great relationships with companies in China and periodically hosts events between management teams and investors in the US. At the same time, James has established a strong track record for stock picking over the years. In 2005, he was selected by Forbes Magazine as one of the ten best stock pickers across all industries. Prior to joining WR Hambrecht + Co, James was affiliated with Fidelity Investments, UBS, and Oppenheimer & Co. Most recently, he was the head of Internet Research Group at America’s Growth Capital in Boston, where he led the research practice in Internet and Mobile Data sectors, both in the US and emerging China.

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