Nomura sings highly of InnoLight: The "irreplaceable winner" in the 1.6T optical module upcycle!

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Despite the recent deep correction in the optical module sector, Zhongji Xuchuang, as a domestic industry leader, still has a solid growth logic.

According to Wind Trading Desk, Nomura recently released a research report stating that with the acceleration of 1.6T optical module shipments and increased penetration of silicon photonics (SiPh) technology as the core drivers, Zhongji Xuchuang is expected to become a core beneficiary in the industry's upward cycle.

The investment bank has significantly raised the company's 2026-2027 performance forecasts, increasing revenue expectations by 44%-53% and net profit forecasts by 64%-75%. Based on the expected 2026 earnings per share of RMB 20.41, Nomura assigns a 30x P/E ratio valuation.

For the above reasons, Nomura maintains its “Buy” rating on Zhongji Xuchuang and has raised its target price significantly from RMB 375 to RMB 612 (an increase of over 63%), representing a 27.5% upside from the current share price. Benefiting from strong demand for domestic computing power, Zhongji Xuchuang’s A-share price has surged more than 6 times since its April low.

Third Quarter Results Exceed Expectations, High-end Products Drive Profitability Improvement

A previous article by Wallstreetcn mentioned that among the latest Q3 results of the “Three Optical Module Giants” (“Yi Zhong Tian”: Eoptolink, Zhongji Xuchuang, TFC), only Zhongji Xuchuang met the market’s “high expectations”: revenue and net profit rose by 56.8% and 125.0% year-on-year, and both increased quarter-on-quarter as well.

The performance growth was mainly due to increased shipments of high-end 1.6T and silicon photonics products, pushing the gross margin up by a significant 9.2 percentage points year-on-year to 42.8%.

The company performed well in cost control, with operating expense ratio dropping 0.4 percentage points year-on-year, further driving the net profit margin up 9.3 percentage points year-on-year. This shows the company maintained good operational efficiency while expanding scale.

Leading Market Share in 1.6T, Technological Advantage Consolidates Competitive Position

Nomura is particularly optimistic about Zhongji Xuchuang's leadership in the high-speed optical module market, expecting the company to occupy 30%-35% and 40%-45% market share in the 800G and 1.6T markets respectively.

Demand for 800G/1.6T products is strong, and Nvidia GPU orders will accelerate related transceiver shipments. The company has significant advantages in silicon photonics technology, whose penetration rate is expected to exceed 50%. Its low material cost feature will continue to boost gross margin.

Nomura expects the company’s gross margin to reach 42.1% in 2027. The company is also making long-term investments in next-generation technologies such as 3.2T transceivers and NPO/CPO, and is consolidating its value-chain position by leveraging supply chain management advantages.

Short-term Results May Be Affected by Supply Constraints, Long-term Growth Logic Remains Solid

Nomura structurally adjusted its profit forecasts on Zhongji Xuchuang.

Due to short-term EML chip supply constraints, it cut the 2025 revenue forecast by 13%, but maintained the net profit forecast, mainly because improvements in product mix and gross margin offset the revenue impact.

Analysts significantly raised the 2026-2027 performance forecasts, with revenue forecasts up by 44%-53% and net profit forecasts up by 64%-75%, mainly based on optimistically expected growth in 1.6T transceiver shipments and rising penetration of silicon photonics technology.

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