Summary of Innolight (300308.SZ) 4Q24 Preliminary Results Company Overview - **Company**: Innolight (300308.SZ) - **Industry**: Data Center Solutions and AI Infrastructure Key Financial Results - **4Q24 Revenue**: Increased by 78% YoY to Rmb6.5 billion, which is 17% and 10% below CitiE and VAe estimates respectively [1][2] - **4Q24 Pre-tax Profit**: Rose by 60% YoY to Rmb1.7 billion, 18% and 12% lower than CitiE and VAe estimates [1][2] - **4Q24 Net Profit**: Increased by 62% YoY or 2% QoQ to Rmb1.4 billion, 15% and 8% below CitiE and VAe estimates [1][2] Market Concerns - Recent share price weakness attributed to: - Potential peaking of overseas AI infrastructure investment due to cost efficiency improvements from open-sourced models like DeepSeek [1][2] - Uncertainty regarding the 1.6T outlook due to GB200/GB300 developments [1][2] - Anticipation of CPO product launches during GTC [1][2] - Expectations may reset post-GTC/OFC with updates on GB300 and CSPs stance over CPO, potentially leading to a turnaround if outcomes are better than feared [1][2] Strategic Developments - Formation of a joint venture with Guangdong HEC Technology, where Innolight will hold 51% share, focusing on liquid cooling solutions for data centers [3] - This move indicates Innolight's ambition to diversify its business into other data center-related products [3] Valuation and Investment Outlook - **Target Price**: Rmb215, based on a 22x FY25E Forward PE, reflecting a -0.5 standard deviation of the 3-year average due to anticipated slower FY26 growth and concerns over peaking AI capital expenditures [4][7] - **Expected Share Price Return**: 113.1% with an expected dividend yield of 1.6%, leading to a total expected return of 114.7% [4] Risks - Downside risks include: - Slower-than-expected data center investments [8] - Weaker-than-expected telecom market expansion [8] - Margin pressures from price competition [8] - Intensifying China-US tech disputes [8] Conclusion Innolight's strong revenue and profit growth in 4Q24 align with previous guidance, but market concerns regarding AI infrastructure investment and product launches may impact share price. Strategic partnerships and a robust target price suggest potential for significant returns, albeit with notable risks.