20231020-招银国际-中际旭创-300308.SZ-Expect_higher_contribution_from_AI_revenue_in_3Q__Upgrade_to_Buy_5页_418kb

In this report, CMB International downgrades Innolight (300308 CH) from a previous downgrade but upgrades it to "Buy" due to higher AI-related revenue contributions. The target price is raised to RMB109.30, up 15.5% from RMB104.00, reflecting attractive valuation amid negative factors like profit-taking and US chip restrictions.

Key drivers for the upgrade include: continuous global AI infrastructure growth and rapid downstream applications, such as AI-powered ads and GitHub copilots adopted by major companies. Innolight's AI revenue is expected to increase from the upcoming 3Q earnings, accelerating in 2024.

TFC (300394 CH), a related supplier, posted strong 3Q23 results with 73.6% revenue and 95.0% NP growth YoY, supporting the positive outlook for AI beneficiaries. Other catalysts include demand for 800G transceivers in AI datacenters, with potential for faster adoption.

Downside risks include interest rate hikes, geopolitical tensions, and lower production volumes. Upside catalysts are faster 800G ramp-up or slower decline in non-AI revenue.

Financially, forecasted revenue, profits, margin, and EPS show strong growth from FY23E onwards, with upside in valuation metrics. Current share price at RMB94.64 is viewed as attractive for 2024 visibility and near-term earnings potential.