Expect higher contribution from AI revenue in 3Q; Upgrade to Buy

（以下内容从招银国际《Expect higher contribution from AI revenue in 3Q; Upgrade to Buy》研报附件原文摘录）
中际旭创(300308)
Since our downgrade report on 14 Aug (link), we have seen a continuous decline on,QQROLJKW?Vx03VKDUHx03SULFHx03E\x03PRUHx03WKDQx03x15x16increasingly favourable, driven by: 1) continuous strong momentum observed inbuilding up AI infrastructure globally; and 2) quick uptake seen in downstreamapplication market (e.g., AI-powered Ads adopted by Meta, Google and Amazon,GitHub copilot by Microsoft). In addition, companies within the AI hardware valuechain start to report strong earnings. On Thursday night (19 October), TFC (300394CH, NA), a leading integrated solution provider for optical sub-assemblies, releasedimpressive 3Q23 earnings, delivering revenue/NP growth of 73.6% and 95.0% YoY,respectively. As we believe Innolight is one of the true AI beneficiaries, we expect AIrelated revenue to contribute more in ,QQROLJKW? s revenue starting from the upcoming3Q earnings and accelerate in 2024, we upgrade to BUY with adjusted TP ofRMB109.30.
Share price is getting attractive again. We downgrade the share price in Augustas the stock has gone far ahead its earnings fueled by generative AI frenzy.Valuation was appealing and production ramp-up of 800G transceivers should taketime. We believe lots of negative news have been baked into the price, e.g., profittaking, challenging macro, updated US restriction on advanced chip exports.Current share price is getting attractive considering: 1) transceiver is one of thecritical components that is widely used in AI datacenters and the global demand onbuilding AI infrastructure remains strong with visibility into 2024; 2) newlyannounced US restriction should have non-material impacts RQx03 WKHx03 FRnear- to mid-term revenue; and 3) continuous progress on monetization ofgenerative AI should yield stable investments in the field.
True AI beneficiaries apart from Nvidia start riding the tailwind. TFC justreleased strong 3Q results. Positioned upstream in Innolight's supply chain andTFC's strong earnings further substantiate the ongoing capacity expansion amongthe beneficiaries in the AI sector. This also underscores our observation in ourrecent AI sector report (link) that the players in the AI value chain are graduallyexperiencing positive outcome in 2023.
Upgrade to BUY with TP of RMB109.30. Considering recent additional ordersreported by UDN (link) regarding hyperscalers and better-than-expected ramp-upRIx03760&?Vx03&R:R6x03FDSDFLW\x0fx03ZHx03H[SHFWx03,QQROLJKW?Vx03UHYHQX to come in better thanour previous estimates. We revised up revenue forecasts by 12%, 13% and 4%and slightly lifted GPM for 2023E/24E/25E. We maintain the same multiple of 35x2025E P/E.
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.