GC Tech_ Highlighting 5 stocks into 4Q with valuation upside and solid growth outlook

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the China Communications and Networking sector, highlighting a 25% average rally in stocks since September 23, 2024, particularly among previously lagging and AI-related stocks [1][10]. Core Companies and Valuation Insights - Five key stocks are favored for their structural growth drivers into 2025E while trading at depressed valuations: - Innolight - Eoptolink - HGTech - GigaDevice - Shennan Circuits [1][2]. - Current 2025E P/E ratios for these stocks are around or below their historical average minus one standard deviation, indicating potential upside in share prices [2][5]. - Valuation scenarios suggest that despite recent rallies, the share prices remain skewed to the upside, with potential price targets based on various P/E multiples [5][7]. Company-Specific Insights HGTech - HGTech is a manufacturer of optical transceivers and telecom equipment. The company is expected to deliver on its bullish guidance in the upcoming 3Q24 results, which could lead to upward revisions in EPS expectations for 2025E [14][17]. GigaDevice - GigaDevice focuses on DRAM products. The near-term ASP outlook is weak due to inventory adjustments, but management's comments on market outlook for 4Q24 and 2025E are anticipated to provide clarity on share expansion and ASP outlook [15][21]. Shennan Circuits - The company has provided soft guidance for 3Q24, indicating weaker consumer-related product demand. Low investor expectations could create potential for positive surprises in results [15][26]. Innolight and Eoptolink - Strong 3Q profits are expected for both companies, but significant share price movements are unlikely unless there are upward revisions in demand outlook or new customer acquisitions [16][20]. Investment Thesis and Risks HGTech - The investment thesis is based on expansion into high-end optical transceivers, which is expected to drive margin improvement and net profit growth from 2024E to 2026E. Current valuations are attractive, trading at the lower end of historical ranges [17][18]. Eoptolink - Eoptolink is positioned to benefit from the ramp-up of 400G/800G optical transceivers, with a strong growth outlook. The stock trades below its historical P/E average, making it attractive [19][20]. GigaDevice - GigaDevice is expected to enter a new growth cycle driven by specialty DRAM expansion. The stock is trading below historical levels, presenting an attractive valuation [21][22]. Innolight - Innolight is the largest optical transceiver supplier in China, benefiting from AI/datacenter expansion. The stock trades at historical trough valuation levels, indicating a favorable risk-reward scenario [23][24]. Shennan Circuits - Shennan is a key PCB supplier expected to benefit from domestic AI infrastructure investments. The stock is trading at a discount to historical averages, making it attractive [26]. Key Risks - Common risks across the companies include: - Slower-than-expected ramp-up in product shipments - Geopolitical tensions affecting supply chains - Competitive pressures leading to pricing erosion and margin drops [18][22][25][26]. This summary encapsulates the essential insights and projections regarding the companies and the industry as discussed in the conference call.