Innolight Is Said Set to Price Hong Kong Listing Below Maximum

Zhongji Innolight, a leading Chinese manufacturer of optical transceivers, is conducting a Hong Kong IPO aiming to raise between $7 billion and $8 billion. The company is offering shares at a price of up to HK$1,010 ($129) each, which represents a discount of between 13.2% and 23% compared to its Shenzhen-listed A-shares. This offering would be Hong Kong's largest share sale since Alibaba's $12.9 billion listing in 2019, and Asia's second-largest IPO this year, following Chinese chipmaker CXMT Corp's $8.6 billion offering.

The Suzhou-based company utilizes these funds for research and development, global production expansion, supply-chain strengthening, acquisitions, and working capital. Innolight's products, which convert electrical signals to light signals for data transfer in fiber-optic cables, are crucial for data centers, cloud networks, and AI computing systems. The company holds about a quarter of the global market for optical interconnects and nearly monopolizes the next generation of these devices.

Innolight has experienced booming business, with net profit doubling last year to 11.6 billion yuan ($1.7 billion) and nearly quadrupling in the first quarter. Its revenue increased 192% to 19.5 billion yuan ($2.9 billion) for the three months ending March 31, with profit jumping 274% to 6.32 billion yuan. The company's shares have quintupled over the past year, showing an 86.2% year-to-date increase. The United States is Innolight's largest market, accounting for 61.7% of its revenue in the first quarter, with major customers like Meta and Nvidia.

Despite being included on the U.S. Department of Defense's "Chinese military companies" list in June, the IPO has garnered significant interest, with cornerstone investors like Singapore's Temasek and Canada's CPPIB reportedly taking up half of the offering. U.S. banks such as Goldman Sachs, Morgan Stanley, and Citigroup are also involved. The strong demand from chip investors highlights a willingness to overlook escalating geopolitical risks to gain exposure to the AI sector.