Innolight (300308 CH) Summary
Core Content
This document provides a detailed equity research update on Innolight, focusing on its financial performance, market outlook, and investment rating. The analysis is conducted by CMB International Global Markets (CMBIGM), which maintains a BUY rating with a target price (TP) of RMB45.60, indicating a potential upside of +50.0% from the current price of RMB30.39.
Key Information
- Stock Performance:
- 12-month price performance is shown with a chart (not included here).
- The stock price declined by 4.9% the previous day, likely due to investor concerns over potential capex cuts from key clients, although the media report was clarified as being related to VR/AR devices, not optical transceivers.
- Market Outlook:
- Despite concerns, CMBIGM maintains a positive outlook for cloud companies' capital expenditures (capex) in 2022.
- Cloud business growth outperforms overall revenue, with AWS, Google Cloud, and Microsoft Cloud growing 36.6% / 43.8% / 26% YoY in 1Q22.
- Amazon indicated overcapacity and plans to reduce operation capex, but its infrastructure capex is still expected to grow from 40% (TTM) to 50% in FY22E.
Financial Highlights
Earnings Summary (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% |
| Net Profit (RMB mn) |
513 |
865 |
877 |
1,095 |
1,352 |
| EPS (RMB) |
0.73 |
1.23 |
1.21 |
1.37 |
1.69 |
| YoY EPS Growth (%) |
-46.3% |
68.5% |
-1.6% |
13.1% |
23.5% |
| PE (x) |
41.6 |
24.7 |
25.1 |
22.2 |
18.0 |
| Yield (%) |
0.3% |
0.4% |
0.7% |
0.9% |
1.1% |
| ROE (%) |
7.4% |
11.0% |
7.6% |
8.8% |
10.0% |
Cash Flow Summary
| Metric |
FY19A |
FY20A |
FY21A |
FY22E |
FY23E |
| Net Cash from Operating |
569 |
22 |
813 |
2,094 |
857 |
| Capex |
-759 |
-956 |
-840 |
-1,005 |
-999 |
| Net Cash from Financing |
1,557 |
1,300 |
2,264 |
-460 |
-155 |
Balance Sheet (YE 31 Dec)
| Metric |
FY19A |
FY20A |
FY21A |
FY22E |
FY23E |
| Total Assets (RMB mn) |
10,491 |
13,616 |
16,565 |
17,441 |
18,969 |
| Total Liabilities (RMB mn) |
3,565 |
5,622 |
4,962 |
4,934 |
5,353 |
| Total Equity (RMB mn) |
6,926 |
7,993 |
11,603 |
12,507 |
13,616 |
Key Ratios
| Metric |
FY19A |
FY20A |
FY21A |
FY22E |
FY23E |
| Revenue Growth (%) |
-7.7% |
48.2% |
9.2% |
28.8% |
15.3% |
| Gross Margin (%) |
27.1% |
25.4% |
25.6% |
26.6% |
26.4% |
| Operating Margin (%) |
12.1% |
14.0% |
12.5% |
11.8% |
12.7% |
| Net Profit Margin (%) |
10.8% |
12.3% |
11.4% |
11.0% |
11.8% |
| ROE (%) |
7.4% |
11.0% |
7.6% |
8.8% |
10.0% |
| Current Ratio (x) |
2.1 |
2.1 |
3.2 |
3.7 |
4.1 |
| Inventory Turnover Days |
-243 |
-218 |
-241 |
-200 |
-190 |
| Receivable Turnover Days |
76 |
69 |
83 |
58 |
50 |
Main Points
- Investor Concerns: Recent stock price decline was attributed to media reports on potential capex cuts, but the company clarified that the cut was specific to VR/AR devices.
- Reaffirmation of Orders: Innolight confirmed that orders for optical transceivers from overseas clients remain unchanged, supporting the company's growth prospects.
- Positive Outlook on Cloud Capex: Despite macroeconomic headwinds, cloud companies are expected to maintain or increase capex in 2022, with AWS, Google Cloud, and Microsoft Cloud showing strong YoY growth.
- Financial Performance: Revenue and net profit are projected to grow significantly in FY22E and FY23E, with EPS expected to rise from RMB1.37 to RMB1.69.
- Valuation: The current PE ratio is 22.2x, with a target price of RMB45.60, suggesting a BUY rating based on expected growth and valuation potential.
Risks
- Weaker capex from global cloud companies
- Slower deployment of 5G infrastructure
- Faster-than-expected technological advancements
Conclusion
CMBIGM reiterates a BUY rating for Innolight, citing its strong position in the cloud capex growth and positive financial outlook. The company is expected to benefit from continued investment in datacenter infrastructure and AI projects, which are likely to remain resilient during economic downturns. However, investors should be cautious of potential risks including macroeconomic pressures and technological shifts.
