Innolight (300308 CH)

Innolight delivered strong FY25 earnings, with revenue up 60% YoY to RMB38.2bn, in line with our estimate and Bloomberg consensus, while net profit rose 109% YoY to RMB10.8bn, 1.4% below our forecast but broadly in line with consensus. GPM improved sharply to 42.6% from 34.7% in FY24, driven by continued strength in high-speed optical module shipments and higher SiPh mix. Momentum accelerated further in 4Q25, with revenue up 102% YoY and 30% QoQ, while GPM expanded to 44.5% from 42.8% in 3Q25. We continue to view Innolight as a key domestic AI beneficiary, supported by improving supplychain readiness, clear leadership in pluggable modules, and further margin upside from deeper SiPh penetration. Maintain BUY, with TP unchanged at RMB707, based on 28x 2026E P/E.

Capacity expanded by 34% YoY in FY25, while shipments grew 45% highlighting robust demand and solid ramp execution. Utilization improved from 74% in FY24 to 85% in FY25, while overseas sales accounted for 92% of revenue and 86% of total shipments. Looking ahead in FY26E, we expect 800G to remain the primary shipment driver, while 1.6T should increasingly emerge as the key revenue and GPM growth driver, supported by higher SiPh penetration and a more favorable mix. Mgmt. also indicated it has strengthened supply assurance for key materials through tighter agreements with core suppliers, higher strategic inventory, and broader vendor qualification, which we believe should improve delivery visibility and support growth into FY26-27.

Looking beyond the current ramp, we believe the Company's product roadmap remains one of the strongest in the sector. Mgmt. sees 800G and 1.6T as the core demand pillars in FY26, with 1.6T likely to scale much faster as adoption broadens across CSPs and AI infrastructure customers. At the same time, the Company is positioning for the next phase of optical interconnect demand across scale-up and scale-cross networks, while continuing to advance its 3.2T roadmap across multiple technology paths, including EML-based and SiPh-based solutions. We expect 3.2T pluggable modules to begin to contribute revenue in FY28E.

Earnings Summary

(YE 31 Dec)

FY24A

FY25A

FY26E

FY27E

FY28E

Revenue (RMB mn)

23,862

38,240

84,065

121,495

175,287

YoY growth(%)

122.6

60.3

119.8

44.5

44.3

Gross margin(%)

33.8

42.0

45.6

46.6

48.5

Net profit (RMB mn)

5,171.5

10,797.3

28,040.8

42,888.3

66,064.9

YoY growth(%)

137.9

108.8

159.7

52.9

54.0

EPS(Reported)(RMB)

4.72

9.80

25.24

38.60

59.46

P/E(x)

120.6

58.1

22.6

14.8

9.6

Stronger into 2026 on 1.6T ramp and SiPh mix

Source: Company data, Bloomberg, CMBIGM estimates

Maintain BUY, with TP unchanged at RMB707, based on the same 28x 2026E P/E. We remain positive on the Company's earnings outlook, driven by sustained 800G volume growth, rising 1.6T contribution, and further margin upside from deeper SiPh penetration. We lift our FY27E sales/net profit forecast by 8%/12% as the Company continues to scale capacity to meet robust demand on top of enhancing cost controls.

BUY (Maintain)

Target Price RMB707.00

Up/Downside 24.2%

Current Price RMB569.41

China Semiconductors

Kevin ZHANG

(852) 37618727

kevinzhang@cmbi.com.hk

Aaron GUO

(852) 39163715

aaronguo@cmbi.com.hk

Stock Data

Mkt Cap (RMB mn)

632,671.5

Avg 3 mths t/o (RMB mn)

18,840.1

52w High/Low (RMB)

649.00/71.99

Total Issued Shares (mn)

1111.1

Source: FactSet

Shareholding Structure

Shandong Zhongji Investment Holdings Co.

10.9%

Wang Weixiu

6.3%

Source: Bloomberg

Share Performance

Absolute

Relative

1-mth

6.6%

16.2%

3-mth

-6.7%

-6.8%

6-mth

41.1%

40.2%

Source: FactSet

12-mth Price Performance


Source: FactSet


Figure 1: Earnings revision

New

Old

Diff(%)

RMBmn

FY26E

FY27E

FY28E

FY26E

FY27E

FY28E

FY26E

FY27E

FY28E

Revenue

84,065

121,495

175,287

83,794

112,154

NA

0.3%

8.3%

NA

Gross profit

38,301

56,591

85,071

38,713

51,927

NA

-1.1%

9.0%

NA

Net profit

28,041

42,888

66,065

27,774

38,357

NA

1.0%

11.8%

NA

EPS(RMB)

25.24

38.60

59.46

25.23

34.85

NA

0.0%

10.8%

NA

Gross margin

45.6%

46.6%

48.5%

46.2%

46.3%

NA

-0.6ppt

0.3ppt

NA

Net margin

33.4%

35.3%

37.7%

33.1%

34.2%

NA

0.2ppt

1.1ppt

NA

Source: Company data, CMBIGM estimates

Figure 2: CMBIGM estimates vs. BBG consensus

CMBIGM

BBG Consensus

Diff(%)

RMBmn

FY26E

FY27E

FY28E

FY26E

FY27E

FY28E

FY26E

FY27E

FY28E

Revenue

84,065

121,495

175,287

84,483

112,899

122,906

-0.5%

7.6%

42.6%

Gross profit

38,301

56,591

85,071

36,295

49,556

58,390

5.5%

14.2%

45.7%

Net profit

28,041

42,888

66,065

23,606

32,894

44,520

18.8%

30.4%

48.4%

EPS(RMB)

25.24

38.60

59.46

20.04

26.85

45.84

25.9%

43.8%

29.7%

Gross margin

45.6%

46.6%

48.5%

43.0%

43.9%

47.5%

2.6ppt

2.7ppt

1ppt

Net margin

33.4%

35.3%

37.7%

27.9%

29.1%

36.2%

5.4ppt

6.2ppt

1.5ppt

Source: Bloomberg consensus, CMBIGM estimates

Figure 3: Innolight's product mix forecast


Source: Company data, CMBIGM estimates

Figure 4: Innolight's GPM forecast


Figure 5: Forward P/E chart

Source: Company data, CMBIGM estimates


Source: Company data, CMBIGM estimates

Figure 6: P/E band


Source: Company data, CMBIGM estimates


Financial Summary

INCOME STATEMENT

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec (RMB mn)

Revenue

10,718

23,862

38,240

84,065

121,495

175,287

Cost of goods sold

(7,182)

(15,796)

(22,166)

(45,764)

(64,904)

(90,216)

Gross profit

3,536

8,067

16,074

38,301

56,591

85,071

Operating expenses

(1,042)

(2,017)

(2,477)

(4,966)

(5,875)

(6,946)

Selling expense

(51)

(47)

(78)

(171)

(182)

(263)

SG&A expense

(558)

(879)

(987)

(2,088)

(3,025)

(4,364)

R&D expense

(739)

(1,244)

(1,615)

(3,425)

(4,707)

(6,440)

Others

306

153

202

717

2,039

4,121

Operating profit

2,494

6,050

13,597

33,334

50,717

78,125

Other income

2

5

10

22

31

45

Other expense

(4)

(2)

(7)

(16)

(23)

(33)

Pre-tax profit

2,492

6,052

13,600

33,340

50,725

78,137

Income tax

(285)

(681)

(2,020)

(3,667)

(5,580)

(8,595)

After tax profit

2,208

5,372

11,580

29,673

45,146

69,542

Minority interest

34

200

782

1,632

2,257

3,477

Net profit

2,174

5,171

10,797

28,041

42,888

66,065

BALANCE SHEET

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec (RMB mn)

Current assets

11,319

18,196

31,084

57,579

104,507

165,819

Cash & equivalents

3,317

5,054

10,987

23,545

65,480

112,701

Account receivables

2,581

4,604

6,277

14,912

15,046

21,452

Inventories

4,295

7,051

12,681

17,411

21,710

27,724

Prepayment

59

80

134

236

341

491

Other current assets

1,067

1,407

1,005

1,475

1,931

3,451

Non-current assets

8,687

10,671

14,205

18,574

25,778

35,557

PP&E

3,948

5,820

7,081

11,257

14,553

19,829

Right-of-use assets

27

34

105

853

1,773

2,975

Deferred income tax

82

222

541

541

909

1,555

Intangibles

401

378

378

254

250

352

Goodwill

1,939

1,939

1,939

1,939

1,939

1,939

Other non-current assets

2,291

2,279

4,163

3,731

6,354

8,908

Total assets

20,007

28,866

45,289

76,153

130,285

201,377

Current liabilities

4,360

6,497

11,558

14,435

25,812

31,538

Short-term borrowings

62

1,426

301

913

1,491

1,807

Account payables

1,857

2,991

7,330

7,716

15,401

16,731

Tax payable

213

244

1,250

2,102

3,596

5,558

Other current liabilities

2,039

1,545

2,287

3,052

4,220

5,741

Contract liabilities

3

10

26

40

58

83

Accrued expenses

187

282

364

612

1,047

1,618

Non-current liabilities

872

2,076

2,109

3,199

5,111

7,621

Long-term borrowings

319

606

510

510

510

510

Bond payables

0

0

0

0

0

0

Deferred income

216

270

291

490

838

1,295

Other non-current liabilities

337

1,200

1,308

2,200

3,763

5,816

Total liabilities

5,232

8,573

13,668

17,634

30,922

39,160

Share capital

803

1,121

1,111

1,111

1,111

1,111

Retained earnings

5,870

10,624

20,248

45,065

82,962

141,280

Other reserves

7,589

7,388

8,406

8,856

9,544

10,604

Total shareholders equity

14,261

19,134

29,765

55,032

93,617

152,995

Minority interest

513

1,159

1,856

3,488

5,745

9,222

Total equity and liabilities

20,007

28,866

45,289

76,153

130,285

201,377


CASH FLOW

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec (RMB mn)

Operating

Profit before taxation

2,492

6,052

13,600

33,340

50,725

78,137

Depreciation & amortization

525

713

934

1,152

1,468

1,936

Tax paid

(285)

(681)

(2,020)

(3,667)

(5,580)

(8,595)

Change in working capital

(830)

(3,210)

(1,958)

(12,341)

4,520

(10,261)

Others

(6)

290

340

1,137

1,822

1,981

Net cash from operations

1,897

3,165

10,896

19,621

52,955

63,198

Investing

Capital expenditure

(1,704)

(2,866)

(2,760)

(4,899)

(7,079)

(10,213)

Acquisition of subsidiaries/ investments

(3,971)

(2,725)

0

0

0

0

Net proceeds from disposal of short-term investments

4,435

2,619

0

0

0

0

Others

65

37

121

1,201

1,596

2,221

Net cash from investing

(1,176)

(2,935)

(2,639)

(3,698)

(5,484)

(7,992)

Financing

Dividend paid

(207)

(399)

(1,083)

(2,918)

(4,456)

(6,849)

Net borrowings

(884)

1,685

(1,114)

612

578

316

Proceeds from share issues

(109)

246

205

0

0

0

Others

884

(40)

(152)

(1,317)

(1,317)

(1,317)

Net cash from financing

(316)

1,492

(2,144)

(3,623)

(5,196)

(7,850)

Net change in cash

Cash at the beginning of the year

2,809

3,234

4,988

10,944

23,502

65,437

Exchange difference

20

39

(178)

0

0

0

Others

405

1,715

6,134

12,559

41,935

47,221

Cash at the end of the year

3,234

4,988

10,944

23,502

65,437

112,658

GROWTH

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec

Revenue

11.2%

122.6%

60.3%

119.8%

44.5%

44.3%

Gross profit

25.1%

128.1%

99.3%

138.3%

47.8%

50.3%

Operating profit

87.9%

142.6%

124.7%

145.2%

52.1%

54.0%

Net profit

77.6%

137.9%

108.8%

159.7%

52.9%

54.0%

PROFITABILITY

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec

Gross profit margin

33.0%

33.8%

42.0%

45.6%

46.6%

48.5%

Operating margin

23.3%

25.4%

35.6%

39.7%

41.7%

44.6%

Return on equity (ROE)

16.6%

31.0%

44.2%

66.1%

57.7%

53.6%

GEARING/LIQUIDITY/ACTIVITIES

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec

Current ratio (x)

2.6

2.8

2.7

4.0

4.0

5.3

VALUATION

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec

P/E

284.7

120.6

58.1

22.6

14.8

9.6

P/E (diluted)

288.8

123.0

58.6

22.6

14.8

9.6

Source: Company data, CMBIGM estimates. Note: The calculation of net cash includes financial assets.



Disclosures & Disclaimers

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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

NOT RATED : Stock is not rated by CMBIGM

OUTPERFORM : Industry expected to outperform the relevant broad market benchmark over next 12 months

MARKET-PERFORM : Industry expected to perform in-line with the relevant broad market benchmark over next 12 months

UNDERPERFORM Industry expected to underperform the relevant broad market benchmark over next 12 months

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