INNOSCIENCE(2577.HK)：GLOBAL INTEGRATED GAN LEADER WITH SIGNIFICANT GROWTH POTENTIAL-格隆汇

机构：招银国际
研究员：Lily YANG/Kevin ZHANG/Jiahao Jiang

　　InnoScience is a leader in the global GaN power semiconductor industry, ranking first with market share of 33.7% in 2023, per Frost & Sullivan (F&S). The Company designs, develops and manufactures different types of GaN products, including discrete chips, ICs, wafers and modules. Their products are widely used in various end markets, such as consumer electronics, renewable energy, industrial applications, automotive electronics and data centers. InnoScience is the first worldwide to achieve mass production of 8-inch GaN-on-Si wafers, and now operates two 8-inch GaN-on-Si wafer fabs with a combined capacity of 13kwpm by the end of 2024. Riding the tailwind of GaN application penetration and market expansion (98.5% 2024-28E CAGR per F&S), we expect the Company’s revenue to grow at 55.2% 2024-27E CAGR and achieve margin improvement driven by the economies of scale in production (GPM/NPM to break even in 2025/27E). Initiate at BUY with TP at HK$49.
　　The global GaN power semiconductor industry is expected to grow at 98.5% 2024-28E CAGR, per F&S. The market expanded rapidly at a CAGR of 88.5% from RMB139mn in 2019 to RMB1.8bn in 2023, and is expected to reach RMB50.1bn in 2028E (98.5% 2024-28E CAGR), per F&S. Key growth drivers include 1) rising demand for higher energy efficiency in compute intensive applications, 2) material upgrade incentive to reduce costs and achieve miniaturization needs, and 3) favorable policies.
　　The GaN power semiconductor market is highly consolidated, with the top three GaN power semiconductor companies taking up 72% of share accumulatively. As a key representative of IDM business model and a pure- play GaN power semiconductor player, InnoScience ranked first with market share of 33.7% in 2023, per F&S.
　　InnoScience holds an unique position within the GaN industry by leveraging several strengths: 1) mass-production capability with the largest capacity and first-mover advantage to capture growing opportunities, 2) IDM model tailored to industry needs with high market entry barriers, 3) a market leader in 8-inch GaN-on-Si technologies (the only company globally providing product R&D covering 15V to 1,200V and developed the flagship V-GaN series), 4) achievement of industrial-scale commercialization with cost benefits and a yield rate exceeding 95%. The mass production technologies led to an 80% increase in die per wafer and a 30% reduction in single chip costs compared to 6-inch GaN-on-Si wafers, 5) owing an experienced team.
　　Initiate at BUY with TP at HK$49 based on 30x 2030E P/E (peers’ 5-yr avg., WACC: 12.0%, RMB/HKD: 1.07) as we expect the Company to achieve stable operations by that time. We project the company’s revenue to grow at 55.2% 2024-27E CAGR, driven by capacity expansion and higher ASP of new products with accelerating penetration of GaN in downstream applications. We expect its GP/NP to break even in 2025E/27E on economies of scale. The company has recently disclosed its self-developed 1,200V GaN product with zero reverse recovery charge, and it is now in mass production for medium- to-high power supplies. The product will be applicable in sectors like NEVs and data centers while bringing energy efficiency.
　　Key risks include: 1) weak demand or lower-than-expected penetration of GaN solutions in new applications, 2) geopolitical risks and supply chain disruptions, etc.