Innolight (.SZ)_ What’s New from 2024 Citi China Conference_ Business Update; Attractive Entry Point

Company-Specific Information 1. Innolight's Presence at Citi China Conference: Innolight participated in the Citi China Conference, where it received strong investor interest. This event served as a platform for the company to showcase its potential and attract investment [2]. 2. Potential Catalysts: The company's potential launch of Gemini2.0 in December and a potential ChatGPT update later this year are seen as near-term catalysts for the optical transceiver sector and Innolight [2]. 3. 800G LPO Demand: There is strong demand for 800G LPO from some customers, which suggests an upside risk of 1.5-2mn 800G demand on top of the 20mn 800G industry demand forecast in 2025 [3]. 4. SiPh Mix: Innolight has a decent SiPh mix for a particular customer, with the SiPh shipment mix of that customer expected to reach 100% in 2025. The company also expects the SiPh mix of 800G to reach 50%+ in 2025 [5]. 5. CPO Solutions: Innolight is developing CPO solutions like PIC/EIC and mountable CPO. However, pluggable solutions are still likely to be the primary solutions in the era of 3.2T and CPO adoption is still quite far away [7]. 6. 2026 Outlook: Innolight expects 1.6T demand to further ramp in 2026, which will be significantly higher than the 2025 level. The company also expects 800G to remain an attractive mainstream solution given price decline and SiPh migration [8]. 7. ASP Decline: Management expects annual price decline in 2025 to be similar to the 10-20% level, as domestic rev mix is low and domestic demand usually sees higher pricing pressure [9]. 8. Capex: Innolight expects capex-to-rev ratio to gradually decline, with no extra capital investment needs once they reach their capacity target [10]. 9. Supply Chain: The company has seen a tight supply of 100G EML due to slower-than-expected ramp from suppliers, but CW laser supply is much better. Innolight will rely less on EML since 2Q24, given customer migration to 800G SiPh [11]. 10. Passive Component Shortage: Innolight does not see any shortage in passive optical components like Faraday Rotators/TEC but more of a price hike [12]. 11. Valuation: The target price for Innolight is Rmb226, based on 22x FY25E Forward PE, which is around -0.5SD of 3-year average to account for slower FY26 growth and overhang of peaking AI capex in FY26 and CPO [14]. 12. Risks: Downside risks include slower-than-expected data center investments, weaker-than-expected telecoms market expansion, margin pressures due to price competition, and China-US tech disputes intensifying [15]. Industry Information 1. 400G/800G Industry Demand: There is strong demand for 800G LPO from some customers, suggesting an upside risk of 1.5-2mn 800G demand on top of the 20mn 800G industry demand forecast in 2025 [3]. 2. Overall Overseas 400G Demand: Overall overseas 400G demand is likely to decline but could still remain at a high level next year [3]. 3. SiPh Migration: There is a gradual SiPh migration from competitors, with Innolight having started developing their SiPh chip 5 years ago [5]. 4. CPO Adoption: CPO adoption is still quite far away given low interest from customers [7]. 5. AI Upgrade Cycle: The overall narrative of AI upgrade cycle remains intact [8].