20220712-招银国际-中际旭创-300308.SZ-Data_center_demand_to_remain_resilient_in_2H22_3页_808kb

Innolight (300308 CH) - Company Update Summary

Core Content

Innolight has announced a positive profit alert for the first half of 2022 (1H22), indicating that its net profit to shareholders is expected to grow by 32.03-55.51% year-over-year (YoY) to RMB450mn-RMB530mn. The mid-point estimate of RMB490mn aligns with previous forecasts and accounts for 44.2% of the full-year 2022 (FY22) net profit. The company attributes this growth to increased demand for 400G/200G optical modules and continuous capital expansion from data center clients.

The 2Q22 results are also in line with forecasts, with net profit to shareholders expected to grow 31.2% YoY and 25.4% quarter-over-quarter (QoQ). The gross margin (GPM) improved in 1H22 due to a favorable product mix, effective cost management, and the impact of FX changes.

Main Views

• Positive Outlook for Data Center Demand: Despite concerns over demand and spending cuts, data center demand is expected to remain resilient in the second half of 2022 (2H22). The company believes that cloud infrastructure capital expenditures will be among the last to be affected, supporting business performance during economic downturns.
• Outperformance of Key Markets: The data center and auto markets are anticipated to outperform other sectors, such as mobile and PC, which are expected to remain weak.
• Continued Growth in Optical Transceiver Sector: The optical transceiver industry is viewed as a sector that has maintained steady growth, and Innolight is positioned to benefit from this trend.
• Product Mix Improvement: The company expects clients to start deploying 800G optical modules from the end of 2022 or early 2023, which will further improve its product mix and performance.
• Buy Rating Maintained: CMB International Global Markets (CMBIGM) has reiterated its "BUY" rating with an unchanged target price (TP) of RMB45.60, equivalent to 26x 2023 earnings (23E P/E), close to the historical 2-year average of 25x.

Key Information

Financial Highlights (YE 31 Dec)

Metric	FY19A	FY20A	FY21A	FY22E	FY23E
Revenue (RMB mn)	4,758	7,050	7,695	9,908	11,426
YoY growth (%)	-7.7%	48.2%	9.2%	28.8%	15.3%
Gross margin (%)	25.4%	25.6%	26.6%	26.4%
Net profit (RMB mn)	513	865	877	1,095	1,352
EPS (RMB)	0.73	1.23	1.21	1.37	1.69
YoY growth (%)	-46.3%	68.5%	-1.6%	13.1%	23.5%
Net gearing (%)	Net cash
Current ratio (x)	2.1	2.1	3.2	3.7	4.1
ROE (%)	7.4%	11.0%	7.6%	8.8%	10.0%

Key Risks

• Weaker capital expenditures from global cloud companies
• Slower deployment of 5G infrastructure
• Faster-than-expected technological advancements

Share Performance

• Market Cap: RMB24,054 mn
• 52-Week High/Low: RMB45.38 / RMB28.45
• Share Price (Current): RMB30.08
• 1-Month Return: -10.4%
• 3-Month Return: -2.9%
• 6-Month Return: -30.8%

Analyst Information

• Analysts: Lily Yang, Ph.D; Alex Ng; Lana Lin
• Contact:
  • Lily Yang: (852) 3916 3716 / lilyyang@cmbi.com.hk
  • Alex Ng: (852) 3900 0881 / alexng@cmbi.com.hk
  • Lana Lin: (852) 3761 8912 / lanalin@cmbi.com.hk

CMBIGM Ratings

• BUY: Stock with potential return of over 15% over next 12 months
• HOLD: Stock with potential return of +15% to -10% over next 12 months
• SELL: Stock with potential loss of over 10% over next 12 months

Summary

Innolight has demonstrated strong performance in the first half of 2022, with net profit to shareholders expected to grow significantly YoY. The company's growth is driven by increased demand for high-speed optical modules and continued expansion in the data center sector. The management's outlook remains positive, particularly for the second half of the year, despite broader economic uncertainties. CMBIGM maintains a "BUY" rating with a target price of RMB45.60, reflecting confidence in the company's position within the resilient optical transceiver industry. While there are potential risks, the company's improved product mix and strategic positioning suggest continued growth prospects.

The financial performance indicates steady revenue and profit growth over the past few years, with a focus on improving margins through cost management and favorable product mix. The balance sheet shows a healthy current ratio and increasing equity, suggesting financial stability. The analyst team highlights the company's potential to outperform in key markets and remains optimistic about its future performance.

The report also includes important disclosures, emphasizing that the information is for informational purposes only and not tailored investment advice. CMBIGM is not liable for any losses incurred from reliance on this report and recommends consulting a financial advisor before making investment decisions.