NEWS WRAP: InnoScience raises $180 million in Hong Kong IPO

Shares of the maker of a new generation of microchips using gallium nitride (GaN) technology rose slightly in their Hong Kong trading debut

By Doug Young

Shares of InnoScience (Suzhou) Technology Holding Co. Ltd. (2577.HK) made their Hong Kong trading debut on Monday, becoming a relatively rare new semiconductor listing in Hong Kong from a company wooing investors with its proprietary technology used in a new generation of gallium nitride (GaN) microchips.

InnoScience’s stock opened at HK$31, up slightly from its IPO share price of HK$30.86, as it became one of the final stocks to debut in a surge of new Hong Kong listings in the final months of this year. The company raised HK$1.4 billion ($180 million) in gross proceeds by selling 45.36 million shares to investors, giving it a market value of HK$27 billion, according to a stock exchange filing.

InnoScience will use 60% of its IPO proceeds for a massive capacity expansion for its 8-inch GaN wafers over the next five years from 12,500 wafers per month midway through this year to 70,000 in 2029. Another 20% will go to R&D and expansion of the company’s product portfolio.

Founded in 2017, InnoScience is a leading global player in the latest generation of microchips made with a combination of GaN and traditional silicon technology. GaN-silicon competes with another technology called silicon carbide (SiC) for use in the most cutting-edge chips, with SiC considered the more mature of the pair.

Global sales for the GaN power semiconductor industry were expected to nearly double from 1.76 billion yuan in 2023 to 3.23 billion yuan this year, according to third-party market data in the company’s prospectus.

InnoScience’s revenue roughly doubled from 2021 to reach 136.2 million yuan (approximately $18.7 million) in 2022, then jumped more than fourfold last year to 592.7 million yuan as its business began to gain traction. The figure grew another 25.2% to 385.8 million yuan in the first six months of 2024 from 308.1 million yuan a year earlier.

The company’s revenue mix is well-balanced between its three main product lines – GaN wafers, GaN discrete chips and ICs, and GaN modules – with each accounting for about a third of total sales. It sells primarily to customers in the consumer electronics, renewable energy, automotive and data center industries. The big majority of its sales, about 90%, are to customers in China.

The company’s costs far exceed its revenue as it continues to ramp up its business, though the losses continue to narrow as it gains scale. Its adjusted loss, a non-Hong Kong financial reporting standards (HKFRS) measure, which excludes changes in the carrying amount of liabilities recognized for financial instruments issued to investors, equity-settled share-based payment expenses and listing expenses, fell from 1.28 billion yuan in 2022 to 1.02 billion yuan last year, and continued to fall to 378 million yuan in the first half of this year from 549 million yuan a year earlier.

One of the company’s biggest risks lies in geopolitical tensions, as the U.S. takes measures to try to stifle development of China’s microchip sector. Another is patent litigation, and the company details several ongoing cases against it by two of its competitors, including one by European chip giant Infineon. But it notes that the decisions of the respective authorities and courts in relation to such cases do not have a direct extra-territorial effect outside the respective countries as patent laws are inherently territorial.

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