Strong 3Q results on accelerating AI revenue

（以下内容从招银国际《Strong 3Q results on accelerating AI revenue》研报附件原文摘录）
中际旭创(300308)
Innolight has released its 3Q23 results, with resilient growth in both revenue/NP at14.9%/89.5% YoY and 39.7%/88.4% QoQ, respectively. The strong revenue growthwas driven by substantial global demand for 400G and 800G optical transceivers.Notably, the Company's gross margin showed consistent improvement across the firstthree quarters of 2023, climbing from 29.5%/31.1% in 1Q/2Q to 33.5% in 3Q. Theresults were in line with our previous expectations (link) that Innolight is one of the trueAI beneficiaries, and we expect AI-related revenue to contribute more in Innolight’srevenue starting from 3Q. We continue to believe Innolight’s AI revenue growth willaccelerate in the next few quarters. Maintain BUY rating with unchanged TP ofRMB109.3.
New incentive program showed Company’s confidence in 2024-27 top lineand bottom line growth. Innolight announced its new incentive plan on 22 Oct.The performance metrics include 1) minimum revenue targets ofRMB13.5bn/RMB17.0bn/RMB20.5bn/RMB23.5bn for 2024-27; 2) minimum netprofit targets of RMB2.65bn/RMB2.97bn/RMB3.31bn/RMB3.41bn for 2024-27.The 2024 targets translate into 40.0% growth in revenue and 116.5% growth in netprofit from RMB9.6bn revenue and RMB1.2bn net profit in 2022. The 2025-27targets translate into 25.9%/20.6%/14.6% YoY growth in revenue and12.1%/11.4%/3% YoY in net profit growth.
True AI beneficiaries apart from Nvidia start riding the tailwind. We havenoticed discrepancies in 3Q performances of several optical transceiver peers.This underscores Innolight's position as a market leader and further solidifies itsstatus as a true beneficiary of the ongoing AI momentum, a point we previouslyhighlighted in our report (link). We believe these true beneficiaries in AI valuechain will gradually deliver a positive outcome in 2023/24E.
Maintain BUY with unchanged TP of RMB109.30. Looking ahead, we expect theCompany to maintain its robust performance, driven by the production ramp-up of800G optical transceivers and better-than-expected demand for 400G products.We will continue to monitor Innolight’s clients’ comments on their capex outlook asthe overseas hyperscalers are expected to announce earnings results soon.Upside catalysts: 1) faster-than-expected ramp-up of 800G, and 2) slower-thanexpected decline of non-AI revenue. Downside risks: 1) continuous rise in interestrates, 2) intensified geopolitical tensions, and 3) lower-than-expected production.