Nomura upgrades Shenzhen T&S Communication to Buy, favoring NPO/CPO-driven demand for high-end connectors

Overview

Shenzhen T&S Communication mainly provides optical-communications products to telecommunications-network and cloud-computing data-center customers, including ceramic ferrules, connectors, and other passive and active components. Nomura believes the company is well positioned in the high-end optical-connector supply chain and will benefit from rising demand for NPO/CPO solutions.

Core views

The company's 2Q26 results were mixed: revenue growth accelerated, but rising costs and product-mix changes weighed on gross margin. Over the medium to long term, NPO/CPO penetration in scale-up networks, growth in high-end optical-module shipments, and AI-infrastructure construction will drive demand for MPO, MMC, and Shuffle Boxes. While intensified competition remains a pressure point, tight supply of high-end optical connectors could create opportunities for sequential growth in 2H26 and 2027.

Analysis framework

The report analyzes revisions to company earnings forecasts, product and regional revenue breakdowns, growth assumptions for AI-related businesses, and relative valuation, and determines the target price using a P/E multiple on expected 2027 EPS.

Methodology notes

• Valuation MethodP/E Multiple Valuation

  The target price is determined by multiplying expected 2027 EPS by the target P/E multiple.

  The CNY231.5 target price is based on expected 2027 EPS of CNY3.99 and a 58x P/E multiple, which aligns with the 58% earnings CAGR projected for FY2026-2028.

• Earnings Forecast RevisionTop-down Demand and Segment Forecasting

  Revenue and profit forecasts are adjusted based on MPO demand, optical-component shipments, and the pace of NPO/CPO deployment in China.

  Higher revenue forecasts reflect accelerating demand and shipments; lower gross-margin forecasts reflect increased costs and product-mix changes, while final earnings forecasts still rise because of revenue growth.

Asset mapping & comparison

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

• Shenzhen T&S Communication (300570.SS)

  Core coverage target

  Strengths

  High-end optical-connector and component supply capabilities; benefits from AI data-center optical-interconnect upgrades; capacity expansion helps ease capacity constraints.

  Weaknesses

  Gross margin is under pressure from rising costs and product-mix changes, while the Shuffle Box business remains at an early, low-base stage.

  Comparison

  Nomura expects its 2026 revenue and earnings forecasts to be 7% and 3% below WiND consensus, respectively, but its 2027-2028 revenue forecasts are 3% to 18% higher, reflecting a more optimistic view on CPO penetration and MPO demand.

  Risks

  Optical-component demand below expectations, CPO penetration below expectations, supply-chain diversification by core customers, and geopolitical risks.

• NVIDIA CORP (US.NVDA)

  Industry-chain catalyst-related party

  Strengths

  Spectrum-X CPO switches have entered full-scale mass production, providing industry validation of growing CPO demand.

  Weaknesses

  Not a rating coverage target in this report; the scale and timing of demand transmission to the supply chain remain uncertain.

  Comparison

  Its CPO product mass production provides a potential external catalyst for Shenzhen T&S Communication's high-end connector demand, rather than a direct financial comparable.

  Risks

  The pace of CPO deployment, customer procurement plans, and progress in supply-chain adoption may fall below expectations.

Key data

• Rating changeUpgraded from Neutral to BuyNomura believes the stock has become more attractive following the recent pullback.
• Target priceCNY231.5Previously CNY138.
• Closing price and implied upsideCNY199.27; +16.2%Price date: 2026-08-18.
• FY2026-2028 revenue forecast revision+19.6% to +39.6%Mainly reflects stronger MPO connector demand and faster optical-component shipments.
• FY2026-2028 earnings forecast revision+18.5% to +40.8%Accelerating revenue growth offsets part of the gross-margin pressure.
• Expected 2027 EPSCNY3.99The target price uses a 58x 2027E P/E multiple.
• AI-related revenue growth82% CAGR over FY2026-2028Includes MPO, MMC, ferrules, and Shuffle Boxes; expected to account for 58% of sales in FY2028.
• Shuffle Box revenue growth167% CAGR over FY2026-2028From a low base.
• Capacity expansion investmentCNY720mnThe new Shenzhen investment project is expected to accelerate capacity expansion.

Impact & implications

If NPO/CPO deployment in AI scale-up networks accelerates, Shenzhen T&S Communication's high-end MPO/MMC connectors, ferrules, and Shuffle Boxes could see faster order and revenue growth. Near-term attention should focus on gross-margin dilution and shipment pacing, while capacity expansion will be an important execution condition for capturing demand.

Risks

• Optical-component market demand is weaker than expected.
• CPO penetration is slower than expected.
• Major customers advance supply-chain diversification.
• Geopolitical risks.
• Rising costs and product-mix changes pressure gross margin.
• Intensifying competition in the high-end optical-connector market.

What to watch

• Actual NPO/CPO deployment in scale-up networks and progress in order conversion.
• Shipment volumes and revenue contribution from high-end MPO/MMC connectors and Shuffle Boxes.
• Construction, commissioning, and capacity ramp-up progress for the CNY720mn Shenzhen expansion project.
• Whether gross margin can stabilize amid changes in costs and product mix.
• Whether AI-related revenue share approaches the projected 58% target for FY2028.
• Core customers' supply-chain strategies and geopolitical developments.