Nomura starts coverage on Yuanjie Semiconductor at Neutral, with strong growth visibility but valuation already quite full

Overview

This is Nomura’s first coverage report on Yuanjie Semiconductor. The report positions Yuanjie Semiconductor as one of China’s leading optical communication laser chip suppliers, with products covering DFB, EML, and CW lasers, and already entering the global leading optical module customer supply chain. The analysis focuses on AI data center high-speed optical module demand, silicon photonics and high-power CW lasers, the NPO/CPO roadmap, IDM manufacturing capability, and market-share opportunities from capacity expansion.

Core views

The core view of the report is that Yuanjie Semiconductor sits at the intersection of optical communication chip technology upgrading and supply tightness, and high-end CW/EML laser demand is expected to be continuously driven by AI customers’ network upgrades over the next 3-5 years. The company, with an IDM model, in-house epitaxy and wafer manufacturing capabilities, mass production of 70mW CW lasers, and 100mW CW customer qualification progress, has the opportunity to increase its share in the high-end optical chip market. However, valuation is already relatively high, with shares trading at 67.3x FY28F EPS, slightly above the 65x industry median valuation used by the report, so first coverage is Neutral.

Analysis framework

The report adopts a combination of top-down and bottom-up methods: first analyzing the global optical communication chip market, the EML/CW laser value chain, InP and epitaxy material supply, silicon photonics, and NPO/CPO technology routes, then assessing Yuanjie Semiconductor’s product progress, IDM capability, capacity expansion, and customer demand, and finally valuing the company’s EPS forecasts using the FY28F P/E median of the A-share optical laser chip peers.

Methodology notes

• Valuation methodsprice_to_earnings_multiple

  Price-to-earnings valuation

  The target price of CNY1,655.00 is based on 65x FY28F EPS of CNY25.47, and this multiple aligns with the P/E median of the WIND China A-share optical laser chip peer group.

• industry_analysistechnology_upgrade_cycle

  Optical communication technology upgrade cycle

  The report treats 800G, 1.6T, 2.4T, 3.2T, silicon photonics, NPO, and CPO as key upgrade paths driving demand for high-end CW/EML lasers.

• company_analysisidm_competitive_edge

  IDM integrated manufacturing advantage

  Yuanjie covers design, epitaxy, wafer manufacturing, packaging and testing, and inspection, which helps strengthen delivery and process control in a tight-supply high-end optical chip market.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Yuanjie Semiconductor Technology / 688498.SS

  Core covered target

  Strengths

  One of China’s leading optical communication laser chip suppliers, with IDM model, 70mW CW mass production, 100mW CW customer verification, and advanced EML execution capability, benefiting from AI data center demand.

  Weaknesses

  Current valuation is high, and the target price implies downside; high-end InP, epitaxy, and critical equipment nodes remain constrained by the global supply chain.

  Comparison

  The report compares it with global high-end optical chip and materials/equipment players such as Lumentum, Coherent, Sumitomo Electric, and Mitsubishi Electric, and says Chinese players are still catching up.

  Risks

  Core customer supply-chain diversification, technology upgrades slower than expected, lower-than-expected NPO/CPO penetration, and geopolitical risk.

• optical communication chip industry

  Upstream industry driver

  Strengths

  AI training and inference networks are strengthening demand for high-speed optical interconnect, driving upgrades in EML, CW, silicon photonics, and NPO/CPO routes.

  Weaknesses

  Advanced segments are highly globalized; InP wafers, epitaxy equipment, lithography, etching, and silicon photonics foundry capacity remain led by a small number of overseas vendors.

  Comparison

  Downstream optical module manufacturing has relatively strong positioning for Chinese vendors, while upstream high-end chips and critical equipment are still dominated by foreign vendors.

  Risks

  Supply-chain disruptions, technology-route shifts, and competitive restructuring from alternatives such as MicroLED or TFLN.

Key data

• RatingNeutralNomura first-time coverage rating.
• Target PriceCNY 1,655.00Based on 65x FY28F EPS of CNY25.47.
• Last CloseCNY 1,715.04July 7, 2026 close.
• Implied Upside-3.5%Relative to target price versus close.
• FY26-28F Revenue CAGR109%Nomura estimate.
• FY26-28F Profit CAGR114%Nomura estimate.
• FY26-28F Data Communication Laser Chip Revenue CAGR119%The report expects high-end CW lasers to be the main revenue pillar.
• High-end Optical Communication Chip Shipments220mn units in 2025 to 1.28bn units in FY28FCorresponding CAGR is 80%.
• Yuanjie CW Laser Market Share32% in FY28FNomura estimate.
• Global Laser Chip Market SizeUSD2.6bn in 2024, USD22.9bn in 2030EReport cites CIC, with a CAGR of 44.1%.
• Combined EML and CW Laser Market SizeUSD970mn in 2024, USD20.8bn in 2030EReport cites CIC, with a CAGR of 66.6%.
• Capacity Utilization74.2% in 2023, 68.1% in 2024, 90.1% in 2025Disclosed by the company; increased significantly in 2025 as demand rose.

Impact & implications

If AI data center optical module upgrades and NPO/CPO penetration progress as expected, Yuanjie Semiconductor may benefit from domestic replacement in high-end optical chips, CW laser power upgrades, and supply tightness, with significant revenue and profit leverage. However, since the rating is Neutral, the report’s investment implication is not short-term valuation expansion, but waiting for earnings realization, customer orders, capacity ramp-up, and high-power product commercialization progress to validate long-term growth.

Risks

• Global optical chip market technology upgrades slower than expected.
• Optical module demand weaker than expected.
• NPO/CPO penetration rate below expectations.
• Core customers diversify supply chains, weakening the company’s share or pricing power.
• Geopolitical risk affecting supply chain, customer onboarding, or overseas expansion.
• High-end InP, epitaxy, and critical equipment supply bottlenecks may limit capacity expansion.

What to watch

• Pacing of 1.6T optical module shipment ramp in FY26-27F.
• Whether demand for 2.4T and 3.2T optical modules starts in FY28F.
• Commercialization timing of 100mW+ CW lasers and conversion of customer orders.
• Progress of 300mW+ CW laser R&D and its applicability to NPO/CPO products.
• Progress of the company’s second-phase R&D production base, the 50G optical chip commercialization project, and U.S. manufacturing base construction.
• Supply-chain strategy and order concentration changes of major global optical module customers.
• Global supply changes in InP substrates, epitaxy equipment, and critical materials.