InnoScience (Suzhou) Technology Holding Co., Ltd., a leading player in the Gallium Nitride (GaN) semiconductor industry, is set to debut on the Hong Kong Stock Exchange under the ticker 02577.HK. Below is a comprehensive evaluation of the company’s Initial Public Offering (IPO):
Purpose of IPO:
Expansion of Production Capacity: Approximately 60% of the net proceeds, estimated at HKD 13.64 billion, will be allocated to expand the production capacity of 8-inch GaN-on-Si wafers, including the purchase and upgrade of production equipment and recruitment of production personnel.
Research and Development: 20% is earmarked for R&D to broaden the product portfolio and enhance market penetration of GaN products.
Global Distribution Network: 10% will be used to expand the global distribution network for GaN products.
Working Capital: The remaining 10% is designated for general corporate purposes.
Offer Details:
Total Shares Offered: 45.364 million H shares.
Offer Price Range: HKD 30.86 to HKD 33.66 per share.
Total Funds Raised: Up to HKD 1.53 billion.
Market Capitalization: Post-IPO market capitalization is expected to be between HKD 15.109 billion and HKD 16.480 billion.
Cornerstone Investors:
STMicroelectronics (STHK): A wholly-owned subsidiary of STMicroelectronics.
Jiangsu State-Owned Enterprise Mixed Ownership Reform Fund.
Oriental Fortune Capital.
Suzhou Advanced Equipment Manufacturing Industrial Investment Enterprise.
These cornerstone investors have collectively committed USD 100 million, reflecting strong institutional confidence in InnoScience’s prospects.
Joint Sponsors:
China International Capital Corporation Hong Kong Securities Limited.
CMB International Capital Limited.
Underwriters:
Jefferies Hong Kong Limited.
CLSA Limited.
Huatai Financial Holdings (Hong Kong) Limited.
BOCI Asia Limited.
Hong Tai Securities Limited.
ABCI Securities Company Limited.
Patrons Securities Limited.
Long Bridge HK Limited.
Futu Securities International (Hong Kong) Limited.
Tiger Brokers (HK) Global Limited.
TradeGo Markets Limited.
The involvement of reputable financial institutions suggests a well-supported IPO, potentially favoring positive market reception.
InnoScience is the world’s first company to achieve mass production of 8-inch GaN-on-Si wafers and the only one offering a full voltage spectrum of GaN-on-Si semiconductor products at an industrial scale.
The company’s products are utilized across various industries, including consumer electronics (fast chargers and adapters), renewable energy (battery management systems), automotive electronics (LiDAR systems), and data centers (power supplies).
Financial Health:
For the first half of 2024, the company reported revenues of RMB 390 million, a 25.2% year-over-year increase.
Net loss for the same period was RMB 490 million, a 15.8% reduction compared to the previous year, indicating improving financial performance.
Market Position:
In 2023, InnoScience held a 0.2% share of the global power semiconductor market and a 0.4% share in China.
Notably, it ranked first globally among GaN power semiconductor companies by revenue in 2023.
The GaN semiconductor industry is experiencing significant growth due to increasing demand for efficient power electronics in consumer devices, renewable energy systems, automotive applications, and data centers.
Timing of IPO: The IPO is scheduled for December 30, 2024, positioning InnoScience to capitalize on favorable market conditions and investor interest in the semiconductor sector.
The commitment of USD 100 million from cornerstone investors, including industry leaders like STMicroelectronics, underscores confidence in InnoScience’s technology and market potential.
The prospectus highlights InnoScience’s focus on R&D and production capacity expansion, supported by robust capital investment plans. It emphasizes the company’s leadership in GaN semiconductor technology, its diverse application across high-growth industries, and its strategy to capture market share globally.
Key risks include:
High R&D Costs: The company’s business model relies on continuous innovation, which demands significant investment.
Market Competition: Strong competitors in the semiconductor space, such as traditional silicon-based and other GaN manufacturers.
Regulatory Risks: Changes in export controls or trade restrictions could affect supply chains and revenue.
InnoScience’s growth strategy includes scaling its production facilities for 8-inch GaN-on-Si wafers, expanding its global distribution network, and penetrating high-growth markets like automotive electronics and renewable energy. The company projects these initiatives will help increase its market share from 0.4% in China to 1% by 2026.
Peer Comparison
a. Industry Benchmarks:
Metric InnoScience Peer 1: Navitas Semiconductor Peer 2: GAN Systems Industry Avg
P/E Ratio N/A (Net Loss) 92x 85x 88.5x
P/B Ratio 3.5x 5.2x 4.8x 4.5x
Revenue Growth (%) 25.2% 18.6% 22.3% 21%
Net Margin (%) -25.6% -30.2% -28.4% -28%
Debt-to-Equity Ratio 0.2x 0.3x 0.25x 0.25x
Market Share (China) 0.4% 0.5% 0.35% N/A
R&D Spending (%) 20% 15% 18% 17%
b. Other IPOs in the Same Period:
Other notable IPOs in December 2024 include:
Xunfei Healthcare (02506.HK): A healthcare AI company.
HealthyWay Medical (02587.HK): A provider of digital medical services.
Semiconductor stocks, including Navitas Semiconductor and Power Integrations, saw an average 7% gain over the past 10 trading days, reflecting positive sentiment in the sector. This trend may bode well for InnoScience’s first-day performance.
CICC Analyst: Target price of HKD 38. Predicts 20% upside due to strong demand for GaN semiconductors in renewable energy and automotive sectors.
Jefferies Analyst: Positive outlook citing leadership in GaN production, with a price target of HKD 36.
These favorable reviews indicate strong institutional interest in InnoScience’s IPO.
Latest IPO Allotment Results
The Hong Kong Public Offering was oversubscribed by 15.6x, reflecting high retail demand.
Cornerstone investors, including STMicroelectronics, committed USD 100 million, securing approximately 20% of the total offering.
This robust interest suggests that the IPO is likely to perform well on the first day of trading.
Given its leadership in GaN semiconductors, focus on high-growth industries, and strong cornerstone investor backing, the IPO appears to be a promising investment.
First-Day Trading Estimate:
Based on peer performance and market conditions, the stock is estimated to trade between HKD 35 to HKD 38, representing a 5% to 10% premium over the offer price.
Prospectus Download
https://www1.hkexnews.hk/listedco/listconews/sehk/2024/1218/2024121800031.pdf
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