Morgan Stanley: First gives INNOSCIENCE (02577) a target price of HKD 95, benefiting from multiple long-term growth drivers.

Morgan Stanley released a research report, covering INNOSCIENCE (02577) for the first time, giving it an Equal-weight rating (EW) with a target price of HK$95. Since announcing a partnership with Nvidia at the end of July 2025, the stock price of INNOSCIENCE has almost doubled (while the Hang Seng Index rose by 8% during the same period). The bank believes that the growth opportunities for Nvidia's AI data center are already largely reflected in the current stock price, but there are still uncertainties in terms of validation and order allocation. The bank believes that INNOSCIENCE is expected to benefit from several long-term growth drivers, including AI data centers, humanoid Siasun Robot & Automation, and electric vehicles. Industry competition remains fierce, and the current valuation largely reflects market high expectations. Gallium Nitride: Niche but huge growth potential The gallium nitride market is a niche area in the semiconductor industry. According to world semiconductor trade statistics, the total potential market size of gallium nitride in 2024 is $346 million, compared to the overall semiconductor industry size of $631 billion. Driven by multiple factors, the bank predicts that the gallium nitride market will achieve a compound annual growth rate of 49% from 2024 to 2029. These driving factors include the conversion of 800V high-voltage direct current power supplies in data centers, the increasing number of servo motors used by humanoid Siasun Robot & Automation, the growing applications of gallium nitride in electric vehicles (such as on-board chargers, LiDAR, DC-DC converters), and the fast charging demand for consumer electronics. INNOSCIENCE is expected to expand its share in the rapidly growing gallium nitride market With its vertically integrated manufacturer (IDM) business model, INNOSCIENCE has the advantages of superior technology roadmaps, production stability, and cost advantages of large-scale production. The bank expects INNOSCIENCE's growth rate to surpass the overall market growth rate. In addition, strategic collaborations with leading downstream customers demonstrate the company's technological leadership and strong growth potential, such as partnerships with Nvidia in AI data centers, with Hesai Technology and ROBOSENSE in electric vehicles, and with Zhixiang Siasun Robot & Automation in humanoid Siasun Robot & Automation. Furthermore, the strategic cooperation with STMicroelectronics also helps expand overseas business. Has long-term growth potential, but competition and potential oversupply of production capacity may persist Besides INNOSCIENCE, other manufacturers like Infineon are also expanding production. According to the bank's supply and demand model, global production capacity is expected to increase from 100,000 wafers per month in 2024 to 345,000 wafers per month by 2029 (based on 6-inch wafers). Overall gallium nitride production capacity utilization may increase, but it is expected to remain below 60% over the next five years, indicating that the pricing and profitability of the gallium nitride market will face pressure. The bank predicts that INNOSCIENCE's gross margin will moderately improve in 2026/27.