Iluvatar (9903.HK): China GPU in strong demand while raw material supply remains tight; 1H26 in line; Buy

Illuvatar's 1H26 revenue was up 192% YoY / 33% HoH, largely in line with our estimate and Bloomberg consensus, reflecting the strong AI chips demand in China. 1H26 GM declined YoY and HoH to 17.2%, lower than our estimate and Bloomberg consensus, which we attribute to the rising cost of key components, such as HBM. Opex ratio improved to 84.5% in 1H26, better than our estimate and Bloomberg consensus, along with the higher-than-expected non-op gains from fair value gains on financial assets, leading to a positive net income in 1H26, in line with our estimate and the company's guidance. In 1H26, Illuvatar had large scale deployment across internet, AI large models, financial services, healthcare, scientific research and other sectors and served over 380 customers, with training / inferencing GPGPU revenue up 38% / 652% YoY, reflecting the company benefiting from the rising AI infrastructure end-demand in local market. We remain positive on Illuvatar's strong shipments growth ahead and p