Downgraded to Neutral: Long-Term CPO Outlook Remains, but Key Customer Risks Are Emerging

Overview

This report focuses on the opportunities and risks for Shenzhen T&S Communication (300570.SS) amid growth in CPO and AI data center optical component demand. Nomura sees the company as a key global MPO supplier that can benefit in the long run from high-end optical component upgrades, but recent weak performance, Corning order risk, high customer concentration, and intensified competition from Taiwan peers have shifted the risk-reward balance toward neutrality, leading to a rating downgrade.

Core views

The core view is that the long-term attractiveness of the CPO market remains intact, while near-term earnings visibility has declined. The company’s FY25 revenue and profit were still up 12% and 14% year-over-year, but below Nomura’s expectations of 14.3% and 23.5%; FY25 4Q revenue and profit dropped sharply, reflecting reduced orders from key customers and lower capacity utilization pressure. Nomura still expects CPO-related high-end MPO and shuffle box to contribute CNY 591 million in FY27F, representing 18% of total revenue, but has lowered FY26-27F revenue and profit forecasts and now prefers InnoLight (300308 CH, Buy) within the China optical communication segment.

Analysis framework

The report applies performance review, segment- and geography-based forecast downgrades, customer concentration analysis, competitive landscape assessment, and relative valuation. Valuation is based on FY27F EPS, assigning 45x P/E, and aligns with FY26-28F profit 45% CAGR assumptions, while referencing CSI300 as a benchmark index.

Methodology notes

• equity_valuationP/E valuation method

  45x FY27F EPS

  The target price of CNY 138 is based on FY27F EPS of CNY 3.06 and a 45x P/E, with the valuation multiple reduced from 50x before to reflect customer concentration, rising competition, and forecast cuts.

• earnings_revisionEarnings forecast adjustment

  FY26-27F revenue and profit reduction

  Nomura lowered FY26-27F revenue forecasts by 22.5%-35.3% and profit forecasts by 32.1%-40.6%, mainly reflecting slower shipment and capacity ramp-up in core MPO business, market competition, and gross margin dilution.

• industry_analysisCPO penetration and AI data center demand analysis

  1.6T/3.2T upgrades, scale-up and scale-out networks

  The report believes growing AI data center optical component demand and CPO adoption across different network architectures will make high-end MPO, MMC, and shuffle box new sources of growth.

Asset mapping & comparison

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

• Shenzhen T&S Communication / 300570.SS

  Covered security

  Strengths

  A key global MPO product supplier, benefiting from AI data center optical component demand, 1.6T/3.2T upgrades, and CPO penetration; has product opportunities in high-end MPO, MMC, and shuffle box.

  Weaknesses

  High customer concentration, with Corning contributing 68.5% of FY25 revenue; a pronounced FY25 4Q performance decline; core MPO business capacity expansion and slower shipments; margin dilution pressure.

  Comparison

  Nomura indicates a stronger preference for InnoLight (300308 CH, Buy) in the China optical communication segment; future CPO market competition includes Taiwanese peers such as Browave and Bizlink.

  Risks

  Demand weaker than expected, slower-than-expected CPO penetration, diversification or in-house shifts in key customer supply chains, and geopolitical risk.

• InnoLight / 300308 CH

  Preferred name within sector

  Strengths

  The report states it is preferred in China’s optical communication space, with a Buy rating.

  Weaknesses

  The report does not elaborate specific weaknesses.

  Comparison

  Nomura prefers InnoLight relative to Shenzhen T&S Communication.

  Risks

  The report does not provide a full risk list.

• Corning / GLW US

  Key Shenzhen T&S Communication customer

  Strengths

  FY25 optical communications revenue grew 35%, indicating continuing end-demand strength.

  Weaknesses

  Its increasing in-house production ratio may reduce orders required from Shenzhen T&S Communication.

  Comparison

  Shenzhen T&S Communication’s FY25 revenue tied to Corning grew 10% year-over-year, below Corning’s optical communication business growth.

  Risks

  Supply chain diversification and in-house production pose pressure on Shenzhen T&S Communication revenue.

Key data

• Rating changeNeutral, previously BuyNomura downgraded the stock rating from Buy to Neutral.
• Target priceCNY 138.00, previously CNY 148.00The new target price is based on 45x FY27F EPS of CNY 3.06.
• Close priceCNY 127.15As of 2026-04-10.
• Implied upside+8.5%Derived from target price versus close price.
• FY25 revenueCNY 1,547mnFY25 revenue grew 12% year-over-year, below Nomura’s expectation of 14.3%.
• FY25 net profitCNY 299mnFY25 profit grew 14% year-over-year, below Nomura’s expectation of 23.5%.
• FY25 4Q revenue/profit changeyoy -28%/-67%; qoq -14%/-56%The report attributes this mainly to lower Corning orders and increased in-house production.
• FY25 gross margin38.0%, up 2.4pp y/yFY25 4Q gross margin was 37.8%, down 1.4pp year-over-year, affected by lower capacity utilization.
• Overseas revenueCNY 1,196mn, +10.8% y/y, 77% of total revenueThe overseas market remains the main revenue source in FY25.
• China revenueCNY 351mn, +17.6% y/yGrowth in FY25 China market revenue.
• Corning revenue contribution68.5% of FY25 revenueDown from 70% in FY24, but still indicates high customer concentration.
• FY27F CPO-related revenue contributionCNY 591mn, 18% of total revenueForecast contribution from high-end MPO and shuffle box in the CPO market.
• FY27F EPSCNY 3.06Used for target price valuation.
• FY26-28F profit CAGR45%Matches the valuation multiple used.

Impact & implications

From an investment perspective, the report does not reject the long-term growth rationale for CPO and AI data center optical components, but it believes valuation currently reflects growth expectations fairly fully, while rising risks from key customer orders, supply chain diversification, intensified competition, and margin pressure increase short-term uncertainty. The downgrade indicates that relative performance over the next 12 months is likely to be closer to the benchmark, rather than meaningfully outperforming it.

Risks

• Optical component market demand weaker than expected.
• CPO penetration slower than expected.
• Key customer supply chain diversification or increased in-house manufacturing.
• Geopolitical risk.
• Intensifying competition in the CPO market going forward, especially from Taiwanese peers such as Browave and Bizlink.
• Core MPO business capacity ramp-up and shipments below expectations.
• Lower capacity utilization causing gross margin pressure.

What to watch

• Corning order trends, in-house production ratio, and supply chain diversification actions.
• Actual adoption speed of CPO in scale-up and scale-out networks.
• Order and revenue realization of high-end MPO, MMC, and shuffle box.
• Whether FY26-27F revenue, gross margin, and EPS forecasts are further revised down.
• Changes in market share of Taiwanese competitors in the CPO market.
• Whether overseas revenue growth can be sustained and whether China revenue is further pressured by competition.