中际旭创：Fundamentals remain strong despite recent market volatility, reiterate BUY

Investment Rating - The report reiterates a BUY rating for Innolight with a new target price of RMB150.76, up from the previous target price of RMB130.71, indicating an upside potential of 31.7% from the current price of RMB114.48 [2]. Core Insights - Despite recent market volatility, the fundamentals of Innolight remain strong, benefiting from the ongoing heavy investments by major cloud service providers (CSPs) to meet rising AI compute demand [1]. - The report highlights a significant increase in capital expenditures (capex) by the Big Four CSPs, which totaled US$52.9 billion in Q2 2024, representing a 57.1% increase year-over-year [1]. - Innolight's valuation is considered attractive at 22.8x/15.3x P/E for 2024/25E, especially following a market pullback of over 35% since July [1]. - Revenue forecasts for Innolight have been revised upwards by 6% and 11% for 2024 and 2025, respectively, due to a stronger capex outlook from cloud companies [1]. Financial Summary - Innolight's revenue is projected to grow from RMB10,718 million in FY23 to RMB23,877 million in FY24, reflecting a year-over-year growth of 122.8% [4]. - Net profit is expected to increase significantly from RMB2,173.5 million in FY23 to RMB5,462.1 million in FY24, representing a growth of 151.3% [4]. - The gross margin is forecasted to remain stable around 33.2% in FY24, slightly improving from 33.0% in FY23 [4]. - The earnings per share (EPS) is projected to rise from RMB2.00 in FY23 to RMB5.03 in FY24, indicating strong profitability growth [4]. Market Context - The report notes that concerns regarding market turmoil in the tech sector are primarily driven by mixed earnings results, fears of a US recession, and uncertainties surrounding the upcoming US presidential election [1]. - Despite these concerns, the long-term investment theme in AI remains positive, with major CSPs expected to continue their investments in AI infrastructure, which is projected to grow by 39% and 13% in capex for 2024 and 2025, respectively [1].