Soochow Securities (Hong Kong) has initiated coverage on INNOSCIENCE (02577), assigning a "Buy" rating and setting a target price of HK$96.90 by the end of 2027.
The firm forecasts the company's operating revenue for 2026-2028 to be approximately RMB 2.2 billion, RMB 3.5 billion, and RMB 7.0 billion, representing year-on-year growth of 80%, 59%, and 100%, respectively.
With the release of data center power demand, improvements in capacity utilization, and a decrease in depreciation pressure, the net profit margin is expected to recover further.
Following a recent visit to INNOSCIENCE's Suzhou factory, the firm expressed optimism about the company's medium- to long-term growth prospects, citing its advantages in the 8-inch silicon-based GaN mass production platform, product portfolio upgrades, and long-term potential in AI power supplies and automotive electronics.
Key Investment Thesis
An 8-inch GaN Platform Company with Consumer Electronics and Industrial Energy Storage Driving Near-Term Growth
INNOSCIENCE is a leading domestic 8-inch silicon-based GaN power semiconductor platform company, with products covering GaN wafers, discrete devices, ICs, and power modules. Its downstream applications extend to consumer electronics, industrial and energy storage, automotive electronics, and AI power supplies.
Its core competitiveness lies not only in GaN material capabilities but also in its 8-inch mass production platform, product definition capabilities, and multi-scenario customer adoption.
The company's current revenue base still primarily comes from consumer electronics and industrial/energy storage. The consumer electronics segment has expanded from early fast-charging adapters and phone/laptop protection chips to higher-value applications such as robot vacuum cleaners, portable power stations, ultra-thin TVs, drones, air conditioners, and kitchen appliances.
The industrial and energy storage segment benefits from production line adoption by key customers like CATL, providing strong revenue visibility.
In the near term, the premiumization of consumer electronics and the scaling of industrial energy storage remain the primary supports for the company's revenue growth.
Valuation Shift: From Wafer Capacity to a Device, IC, and Module Platform
For GaN companies, a valuation logic based solely on selling wafers is relatively weak. INNOSCIENCE's current revenue structure no longer relies solely on wafer sales; modules and ICs/devices have become the main revenue sources.
The wafer business demonstrates the company's 8-inch GaN mass production capability, the module business reflects customer solution capabilities, and the IC/device business better showcases product definition capabilities and customer stickiness.
With the continuous adoption by customers in automotive electronics, data center power supplies, and high-end consumer electronics, the company is poised to evolve further from a material/manufacturing platform to a product platform.
AI Power Supplies Offer Valuation Upside; Automotive Electronics Represent a Second Growth Curve
The data center business currently contributes a small revenue base, but the company has already engaged with traditional power architecture customers and is advancing three-stage power conversion solutions (e.g., 800V to 54V, 54V to 12V, 12V to 1V).
Medium- and low-voltage GaN chips account for a higher proportion in the AI server power supply chain, making this a key area for future monitoring.
If the 800V HVDC architecture sees small-scale volume growth in Q3 2026, it would signal a transition from solution testing to order fulfillment for AI power supplies, further strengthening the company's medium-term potential in the data center power chain.
In automotive electronics, the company has expanded from early applications like LiDAR and in-car PD interfaces to higher-value segments such as OBC and DC-DC, entering the joint development and testing phase with automakers.
Humanoid robots represent a potential long-term application for low-voltage GaN, but the current revenue contribution is small and should not be over-emphasized as a primary quantitative driver.
Profit Recovery Driven by Synergistic Improvements in Yield, Depreciation, Utilization, and Product Mix
The company's production yield has improved from the early ramp-up phase to a relatively high level. Early equipment depreciation is expected to be largely completed during 2026-2027.
Subsequent capacity expansion will rely more on supplementing bottleneck equipment like MOCVD, leading to a marginal decrease in capital expenditure per unit of capacity.
Coupled with an increasing proportion of higher-value scenarios such as low-voltage chips, premium home appliances, industrial energy storage, automotive electronics, and AI power supplies, the company's gross and net profit margins are expected to enter a sustained recovery phase.
Compared to mere revenue growth, the release of operating leverage is the core driver for the future inflection point in profitability.
Risks to Consider
Potential risks include slower-than-expected adoption of AI power supplies, slower-than-expected progress in automotive electronics adoption, slower-than-expected profit recovery, and intensified industry competition leading to pricing pressure.
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