Innolight announced FY20E preliminary net profit of RMB780mn-905mn, up 52%-76% YoY, with mid-point of RMB843mn (+64% YoY) largely in-line with our/ consensus estimates of RMB870/863mn. By 4Q20, we estimate revenue/net profit of RMB1,909mn/252mn, up 30%/62% YoY. The strong result was driven by robust data traffic and increasing capex from global/china hyperscalers. We slightly adjusted our estimates for 4Q20 results, and revised our TP to RMB 72.66 is based on same 42x FY21E P/E (2-year historical average). Innolight now trades at lower end of its historical valuation band, and we believe concerns over hyperscale capex slowdown in 2021 is overdone. Reiterate BUY. Upcoming catalysts include stronger cloud capex and 5G deployment.
- FY20 NP largely in-line; Solid growth in Q4. Innolight reported FY20 preliminary net profit of RMB780-905mn (+52%-76% YoY), largely in-line with our/consensus estimates, mainly driven by global hyperscale capex from major cloud companies (e.g. Google, Amazon, Facebook, Microsoft) and rapid 400G upgrade. For 4Q20, we estimate revenue/net profit grew 25%/62% YoY (vs +57%/56% YoY in 3Q20), given slower China 5G deployment but improving margins due to better product mix and yield of 400G products.
- Expect strong demand pick-up in 2Q/3Q21E. Looking into FY21E, we expect weaker 1Q21E on seasonality and sequential demand pick-up into 2Q/3Q21E, driven by datacom demand ramp from overseas clients. As the global largest supplier of 100G/200G/400G optical modules and increasing presence in telecom market, we expect Innolight to become the major beneficiary of secular data growth and 400G datacom upgrade cycle. We expect Innolight to deliver 29%/37% revenue/NP CAGR during FY20-22E.
- Maintain BUY with new TP of RMB72.66. We reiterate BUY and adjusted our target price to RMB72.66 based on same 41.9x FY21E P/E, after slight revision of our forecasts. Trading at 29.7x FY21E P/E (1-sd below 2-year avg.), we think the stock is attractive, compared to 39% EPS FY20-22E CAGR. Potential risks include weaker capex from global cloud companies, slower deployment of 5G infrastructure and higher ASP pressure.
