History always repeats itself in astonishing ways: Whether the boom cycle of optical fiber can continue, capacity expansion is the biggest concern.

History always repeats itself in astonishing ways: Whether the boom cycle of optical fiber can continue, capacity expansion is the biggest concern.

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The optical fiber industry is standing at a crossroads that feels familiar. Demand recovery is driving prices higher, with stock prices rebounding sharply, mirroring the start of the upward cycle in 2017 to 2018.

However, history clearly records how the boom at that time abruptly ended under the heavy pressure of excess capacity. Whether this cycle can have a different outcome largely depends on the discipline on the supply side.

According to Wind Chasing Trading Desk, UBS's latest research report shows that YOFC's stock price has continuously climbed since the beginning of this year, closely matching the rising trend of spot fiber prices.

This round of price recovery began in the second half of 2025. The core driving forces are a tightening supply owing to surging demand for data communications, a revival in overseas telecom demand, and incremental demand from fiber drones.

UBS analyst Jasmine Huang maintained a "Neutral" rating for YOFC in the report released on March 9, with a 12-month target price of RMB 140.

Behind this cautious stance lies persistent vigilance towards the risk of capacity expansion—though no major expansion has been announced yet, this risk remains the Damocles sword hanging over the industry.

Historical Mirror: The Rise and Fall of the Last Cycle

Looking back at the 2017-2018 upward cycle, the main driver behind the sustained surge in fiber prices then was large-scale 4G network construction and FTTH (fiber to the home) deployment. The supply side was relatively tight, and prices climbed in sync with YOFC's stock price.

The turning point appeared around mid-2017. The industry announced a mass of expansion plans, but strong demand growth meant investors had limited concerns about potential supply gluts.

However, the pace of 5G demand roll-out was far below expectations, while large-scale capacity was released as scheduled before the end of 2018, drastically reversing the supply-demand balance. Fiber prices plummeted, and YOFC's stock price also crashed.

This history clearly reveals a pattern: YOFC's stock price and spot fiber prices are highly correlated, and the core driver of price trends has consistently been changes in supply and demand dynamics.

This Round of Recovery: Coexistence of Demand Drivers and Supply Constraints

Compared with the previous cycle, this round of price recovery features different structural characteristics.

On the demand side, incremental sources are more diverse—the surge in data communication demand is the main engine, the mild recovery in overseas telecom provides support, and fiber drones constitute a new growth point.

On the supply side, after years of downturn, overall industry capacity has remained basically stable, in some cases even shrinking. UBS forecasts:

YOFC's revenue will sharply rise from about RMB 12.197 billion in 2024 to about RMB 14.087 billion in 2025, and further leap to about RMB 17.8 billion in 2026.

EBIT margin is expected to increase from 7.6% in 2024 to 10.1% in 2025, reaching 12.7% in 2026.

Net profit is forecast to recover from RMB 676 million in 2024 to RMB 936 million in 2025, and further increase to about RMB 1.58 billion in 2026.

Biggest Variable: The Pace and Timing of Capacity Expansion

UBS's report clearly points out that the sustainability of the current price rise depends critically on the speed and scale of capacity expansion. If the supply side remains disciplined, fiber prices are expected to stay in a healthy zone; otherwise, aggressive expansion could trigger another surplus cycle and repeat the history of 2018-2019.

Currently, UBS's channel checks have not found any major expansion announcements, and risk is deemed within a controllable range. At the same time, the bitter lessons of the last cycle have made fiber companies generally more cautious, tending to postpone large capital investment decisions until demand sustainability is more fully verified.

However, UBS also stresses that aggressive capacity expansion remains a key downside risk that requires ongoing monitoring.

Investor Divergence: Consensus on Fundamentals, Debate on Elasticity Expectations

Since Q4 2025, market attention on the fiber sector has noticeably heated up. According to UBS, investors have little disagreement on the overall improvement in supply-demand balance and the sector's bottoming and turning point, but debates focus on two points:

First, how much profit elasticity can price increases bring; Second, whether aggressive capacity expansion will trigger a new surplus cycle.

Buy-side profit expectations have not yet reached clear consensus—UBS forecasts EPS of RMB 1.91 for 2026, market consensus is RMB 2.10; UBS forecasts RMB 3.04 for 2027, market consensus is RMB 2.92.

With the recent price rise, earnings forecasts from various institutions have been generally revised upward, which provides some support for valuations. However, at this stage, stock prices still face considerable volatility, and the impact of market sentiment must not be underestimated.

Risk Disclosure and DisclaimerThe market involves risks; investment should be cautious. This article does not constitute personal investment advice, nor does it consider the individual investment objectives, financial situation, or needs of specific users. Users should consider whether any opinions, viewpoints, or conclusions herein fit their particular situation. Invest accordingly, at your own risk. ```