New stock outlook | HiSilicon: High revenue compound growth, still facing growth challenges behind the "AI fever"

In recent years, the explosive growth of the artificial intelligence (AI) industry has posed unprecedented demands on the bandwidth, density, and energy efficiency of communication networks. With the acceleration of global AI data center construction and technological iteration, the optical module industry is showing a trend of rapid growth, attracting numerous enterprises to actively expand. In this context, the optical interconnect product provider, Beijing Hailight CoreZheng Technology Co., Ltd. (referred to as Hailight CoreZheng), submitted its listing application to the Hong Kong Stock Exchange on October 31, with Huatai International as the exclusive sponsor. The company plans to use approximately 51% of the proceeds from the listing for capacity expansion and automation upgrades; approximately 37% will be used for new product and technology research and development; approximately 2% will be used for business promotion and overseas market expansion, and approximately 10% will be used as operating funds and for general corporate purposes, aiming to further consolidate its competitive advantage in the silicon photonics optical module field and seize the industry opportunities driven by AI. The world's tenth-largest professional optical module provider According to the prospectus, Hailight CoreZheng's history can be traced back to the establishment of Suzhou Hailight Core Chuang Optoelectronics Technology Co., Ltd. in November 2011, which completed its shareholding restructuring and renamed itself in December 2020. As a provider focusing on optical interconnect products, the company's business includes optical modules, active optical cables (AOC), and other products. The company's products are widely used in AI data centers to support high-speed, high-density, and energy-efficient data transmission. According to Frost & Sullivan data, based on revenue in 2024, Hailight CoreZheng ranks tenth among global professional optical module providers with a market share of 0.7% and is the fastest-growing company among the top ten manufacturers in terms of revenue from 2022 to 2024. It ranks sixth among global professional AI optical module providers and fifth in China, with a global market share of 1.8%. In terms of product revenue structure, optical modules are the company's core source of revenue, accounting for 68%, 70.6%, 68.5%, and 69.3% of revenue in the first half of 2025, respectively; the share of AOC products fluctuates between 12.5% and 26.3%, reaching 26.2% in the first half of 2025; other products (mainly including optoelectronic components and raw materials) account for a relatively small proportion, at 4.5% in the first half of 2025. It is understood that Hailight CoreZheng's core competitive advantages mainly cover three aspects. Firstly, technological barriers, Hailight CoreZheng has silicon photonics technology as its core differentiating competitive strength, building end-to-end technological capabilities from chip design to optical module manufacturing. Its optical module product portfolio covers transmission rates of 100G, 200G, 400G, and 800G, compatible with a variety of industry standard form factors, with silicon photonics technology used for single-mode optical modules of 400G and above specifications. AOC products, as a supplement to optical modules, are suitable for short-distance interconnection needs within or between cabinet devices, forming a synergistic effect with other product lines to meet diverse customer application scenarios. Secondly, high-quality customer resources, through the Joint Design Manufacturing (JDM) model deeply bound with leading Chinese Internet companies and cloud service providers, the products have been widely deployed in top customers' AI data centers, establishing a high market entry barrier. Thirdly, cost control capabilities, the company's silicon photonics chips use the "LesschangeCMOS" design, sharing 12-inch production line capacity with traditional CMOS integrated circuits, reducing wafer costs by 30-40% compared to overseas foundries, and the overall cost of optical modules is 20-30% lower than comparable competitors. Looking ahead, the company focuses on three main technological directions: 1.6T, 3.2T, and higher-speed next-generation high-speed optical interconnect products to meet the continuous growth in data throughput demand of AI data centers; near-packaging optics (NPO) and co-packaging optics (CPO) and other advanced technologies, through the close integration of optical engines with electronic chips, reduce signal loss and improve energy efficiency; PCIeAEC and PCIeAOC products, realizing high-speed optical interconnection of servers and acceleration cards, further increasing transmission bandwidth and reducing power consumption. Rapid revenue growth, profitability yet to be improved Benefiting from the strong demand for optical modules in AI data centers and the enhancement of the company's product competitiveness, Hailight CoreZheng has achieved rapid revenue growth in recent years. Financial data shows that the company's operating revenue in 2022, 2023, 2024, and the first half of 2025 were RMB 103 million, RMB 175 million, RMB 862 million, and RMB 698 million respectively. The compound annual growth rate of revenue from 2022 to 2024 was 189.6%, with a year-on-year revenue growth of 164.4% in the first half of 2025. It is worth noting that although Hailight CoreZheng's revenue growth is impressive, the company has not yet achieved profitability. The company's net losses in 2022, 2023, 2024, and the first half of 2025 were RMB 60.29 million, RMB 109 million, RMB 18.22 million, and RMB 34.85 million, respectively, with a cumulative loss of over 200 million in the past three and a half years. According to financial data, one of the main reasons why the company has not yet turned profitable is the high sales costs leading to a low sales gross margin. The company's sales gross margin dropped to -17.9% in 2023. In 2024, due to positive factors such as economies of scale and expanding overseas markets, the gross margin rose to 11.8%, but it fell back to 6.1% in the first half of 2025, mainly influenced by changes in product structure and intensified market competition. In terms of cash flow, the company's operating cash flow has not yet achieved positive inflow. The net cash flow used in operating activities in the first half of 2022, 2023, 2024, and 2025 was RMB 90.72 million, RMB 91.04 million, RMB 2.55 billion, and RMB 17.96 million, respectively, mainly due to the high amount of accounts receivable and inventory tying up funds. However, thanks to support from financing activities, the company's cash and cash equivalents reached RMB 348 million at the end of the first half of 2025. Opportunities for technological breakthroughs in the high-growth industry The development prospects of Hailight CoreZheng are closely related to the overall growth trend of the optical interconnect industry, and the continuous penetration of AI technology has brought broad growth space to the industry, with the company expected to achieve performance growth by further expanding economies of scale. According to Frost & Sullivan data, the global photonic interconnect market sales have increased from 4.2 billion in 2020 to 46.2 billion in 2024, with a compound annual growth rate of 82.3%. It is expected to further increase to 212.2 billion by 2029, with a compound annual growth rate of 35.7% from 2024 to 2029. Among them, as a core segment, the AI optical module, has achieved a compound annual growth rate of 82.2% from 2020 to 2024, reaching a market size of 42.8 billion in 2024, and is expected to increase to 159.2 billion by 2029, with a compound annual growth rate of 30.1%. The Chinese market has benefited from the advancement of the "Eastern Numbers and Western Algorithms" project and the accelerated construction of domestic AI data centers. The market size of AI optical modules has increased from 600 million in 2020 to 69 billion in 2024, with a compound annual growth rate of 86.8%. It is expected to reach 40.4 billion by 2029, with a compound annual growth rate of 42.3% from 2024 to 2029. Among them, as the next-generation technology direction, the market size of silicon photonics optical modules in China is expected to reach 23 billion by 2029, with a high compound annual growth rate of 59.7% from 2024 to 2029. From the industry trends, optical module technology is evolving towards higher speed, higher integration, and lower power consumption. Products with higher speed rates such as 1.6T and 3.2T are gradually entering the commercialization stage, advanced packaging technologies such as CPO and NPO are becoming more mature, silicon photonics technology penetration rate is continuously increasing, these trends are highly compatible with Hailight CoreZheng's technological layout. The company has made progress in the research and development of 1.6T silicon photonics optical modules, and is also advancing the research and development of 3.2T and 6.4T optoelectronic chips to adapt to NPO/CPO application scenarios, keeping its technological reserves in sync with industry development. As an important participant in the AI optical module track, Hailight CoreZheng has established strong competitive advantages in the industry with its silicon photonics technology end-to-end capabilities, quality customer resources, and rapidly growing revenue scale. The submission to the Hong Kong Stock Exchange is expected to leverage the power of the capital market to accelerate capacity expansion and technology research and development, further solidifying its market position. Although the company still faces challenges such as not turning profitable, high concentration in the supply chain, etc., its profitability is expected to gradually improve as economies of scale are released, research and development investment is transformed, and product structure optimization is enhanced. For investors, the investment value of Hailight CoreZheng lies in its resonating effects of silicon photonics technology barriers and industry growth dividends. However, attention should also be paid to potential risks such as market competition, unexpected technological iterations, and profitability improvements falling short of expectations.