Report Interpretation

Overview

This earnings review examines Jiangsu Zhongtian Technology's stronger 2Q26 performance and the durability of its optical-fiber and subsea-cable earnings drivers. BofA reiterates Buy, arguing that specialty-fiber mix gains, overseas opportunities and marine-cable demand support a re-rating despite lower longer-term assumptions and a reduced RMB65 price objective.

Core views

Zhongtian reported 1H26 net income of RMB2.39bn, up 52% YoY and within its previously announced 50–60% profit-alert range. This implies 2Q26 net income of RMB1.47bn, up 56% YoY. Quarterly revenue reached RMB17.80bn, up 29% YoY, while gross profit increased 43%; net margin rose 1.5 percentage points to 8.3%. BofA attributes the performance principally to strong optical-fiber conditions. Optical communication contributed close to half of 1H profit. Fiber gross margin rose from 40% in 1Q26 to 60% in 2Q26 as average selling prices increased from RMB60–70/fkm to RMB100/fkm. Management believes conventional-fiber pricing has stabilized at RMB90–100, while specialty-fiber prices continue to rise. The report expects further 2H26 ASP and margin upside as the mix shifts toward higher-margin products; current product mix is G657A1/G657A2/G652D at 20%/30%/40%. BofA also highlights barriers to new supply, including long ramp-up periods and customer certification, alongside Zhongtian's planned preform-capacity expansion of 800–1,000 tonnes from 3,200 tonnes. Discussions with North American cloud service providers could lead to orders in 2026. The marine business is the second major driver. Segment gross margin rose by almost 10 percentage points YoY as deliveries shifted toward 500kV subsea cable. Zhongtian expects FY26 marine revenue to grow 50%, supported by Germany and Poland deliveries in 2H26, while margins remain above 30%. Its RMB11.3bn backlog remains elevated, and management expects major European and Southeast Asian orders worth more than RMB1bn. BofA views high barriers to entry in subsea cable, a potential offshore-wind recovery from a low 2025 base, and rising grid investment as supportive of subsea and land-cable earnings. BofA raises 2026E net income by 4.1% to RMB8.78bn, reflecting higher fiber and marine margins. It now forecasts 2026E optical-communication and subsea margins of 48% and 32%, respectively, versus prior estimates of 47% and 30%. However, it cuts 2027E and 2028E net-income estimates by 4.0% and 10.9%, respectively, to RMB13.10bn and RMB14.87bn, reflecting lower expected global offshore-wind activity and a reduced assumed fiber margin of 50% versus 54% previously. Revenue estimates are reduced by 0.2%, 1.1% and 2.4% for 2026E–2028E. The price objective is reduced to RMB65 from RMB73.3 using a DCF valuation of 2026–35E cash flows, with a 9% WACC, 3% terminal growth rate and beta of 0.98. BofA nevertheless maintains Buy, noting that the stock traded at 10.5x one-year-forward P/E, below one standard deviation from its historical average; its rolling P/E comparison shows about 11x versus a historical average of 16x. A sum-of-the-parts view indicates implied current multiples of 14x for optical earnings and 10x for subsea earnings, which BofA considers low given the structural drivers.

Analysis framework

BofA starts with the reported 1H26 and implied 2Q26 results, then links segment margins and pricing to fiber supply-demand conditions, specialty-product mix and marine-cable deliveries. It revises earnings estimates based on updated margin assumptions, weighs nearer-term improvements against lower long-term offshore-wind and fiber-margin assumptions, and values the company using DCF alongside P/E and sum-of-the-parts implied multiples.

Methodology notes

• Valuation methodsDCF (Discounted Cash Flow)

  DCF valuation of 2026–35E cash flows

  The price objective discounts forecast cash flows from 2026 through 2035 using a 9% WACC, 3% terminal growth and a beta of 0.98.

• Valuation methodsSOTP (Sum-of-the-Parts) Valuation

  Sum-of-the-parts implied P/E comparison

  The report separates optical, subsea, grid and other earnings to show the valuation multiples implied by the current share price.

• Industry AnalysisSupply-demand framework

  Optical-fiber supply-demand and pricing analysis

  The report links rising fiber prices and margins to demand growth exceeding supply, while emphasizing high entry barriers and lengthy customer certification for new suppliers.

Asset mapping & comparison

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

• Jiangsu Zhongtian Technology Co., Ltd. (600522.SH)

  Primary covered company and beneficiary of optical-fiber, subsea-cable, renewable-energy and grid-investment demand.

  Strengths

  Rising specialty-fiber mix, strong optical-fiber pricing, high-barrier subsea-cable capability, elevated backlog and overseas delivery opportunities.

  Weaknesses

  Longer-term earnings assumptions are reduced for lower offshore-wind activity and fiber margins.

  Comparison

  The report cites 10.5x one-year-forward P/E versus a historical average of 16x, with implied multiples of 14x for optical and 10x for subsea earnings.

  Risks

  Offshore-wind installation, overseas demand, trade barriers, copper and shipping costs, and optical-fiber and energy-storage demand may differ from assumptions.

Key data

• 1H26 net incomeRMB2.39bnUp 52% YoY.
• 2Q26 net incomeRMB1.47bnImplied result, up 56% YoY.
• 2Q26 fiber gross margin60%Up from 40% in 1Q26 as ASP increased.
• Fiber ASPRMB100/fkmUp from RMB60–70/fkm.
• Marine order backlogRMB11.3bnManagement expects additional major Europe and Southeast Asia orders worth more than RMB1bn.
• 2026E net incomeRMB8.78bnRaised 4.1% versus the prior estimate.
• 2027E and 2028E net income revisions-4.0% and -10.9%Cuts reflect lower offshore-wind and fiber-margin assumptions.
• DCF assumptions9% WACC, 3% terminal growth, 0.98 betaApplied to 2026–35E cash flows for the RMB65 price objective.

Impact & implications

The report argues that optical-fiber pricing, specialty-fiber mix and subsea-cable execution can sustain stronger near-term profitability and support a re-rating. Its lower price objective reflects more cautious medium-term offshore-wind and fiber-margin assumptions rather than a change in the Buy view.

Risks

• Lower-than-expected offshore-wind installation could reduce subsea-cable demand.
• The company has high reliance on SOEs' investment strategy.
• Increasing trade barriers between China and other countries could affect overseas cable demand and acceptance.
• Copper and shipping costs could rise faster than expected.
• Demand for optical-fiber cable and energy-storage systems could be lower than expected.
• Privacy and national-security risks in the telecom industry could affect the business.