Price Increases and a Higher-End Product Mix Drive a Sharp Recovery in YOFC's 2Q Earnings

Overview

This report reviews YOFC's 1H26 and 2Q26 results, focusing on the reasons why earnings significantly exceeded expectations. Nomura attributes the improvement to robust AIDC demand, tight supply, a higher proportion of high-end products, and optical fiber price increases. It believes the company will continue to benefit from demand for hollow-core fibers and MPO connectors, and therefore maintains its Buy rating and HKD 266.00 target price.

Core views

YOFC announced its 1H26 results after the market close on August 21, 2026, reporting revenue of CNY 9.8bn and earnings of CNY 2.9bn, up 54% and 889% YoY, respectively; earnings were close to the upper end of its previous guidance of CNY 2.4bn-3bn. In 2Q26, revenue increased 75% YoY and 65% QoQ, 3% below Nomura's forecast; however, earnings increased 1587% YoY and 391% QoQ, exceeding Nomura's forecast by 117%, indicating that the earnings improvement was far stronger than the revenue performance. Nomura believes the earnings beat was mainly attributable to strong price increases driven by robust AIDC demand and supply shortages, alongside a structural increase in the proportion of high-end products. In 1H26, gross margin increased 25.1 ppts YoY to 53.4%; in 2Q26, gross margin reached 60.5%, up 31.8 ppts YoY and 19.0 ppts QoQ. Rapid revenue growth combined with substantial gross-margin expansion explains why earnings growth significantly outpaced revenue growth. By business segment, revenue from optical communications products increased 59% YoY to CNY 6.1bn, mainly driven by demand for high-end optical fibers. Revenue from optical transmission components increased 55% YoY to CNY 2.2bn, which Nomura believes was mainly driven by shipments of optical connectivity components, including contributions from subsidiary EverProX (300548 CH, not rated). This indicates that the earnings improvement did not come from a single product but encompassed both high-end optical fibers and connectivity components. Regarding progress in high-end products, the company disclosed that, as of June 2026, it had delivered more than 10,000 fiber-core kilometers of hollow-core fiber cumulatively. Nomura expects AI-related optical fiber products, such as hollow-core fibers, and optical components, such as MPO connectors, to continue facing strong demand. The company is positioned to benefit from robust demand and tight supply in the global AIDC market for high-end optical fibers and components. In terms of valuation, Nomura maintains its Buy rating and HKD 266.00 target price. The target price is based on FY27F EPS of CNY 9.75 and a P/E multiple of 23.7x, in line with the median P/E of H-share cable companies listed by WIND; the stock's benchmark index is the Hang Seng Index. The Buy rating used in the report corresponds to an expectation that the stock will outperform the benchmark over the next 12 months.

Analysis framework

The report first compares the YoY and QoQ changes in revenue and earnings for 1H26 and 2Q26, benchmarking the actual results against Nomura's forecasts and the company's previous earnings guidance. It then analyzes gross margin, product mix, and price increases to identify the sources of the earnings beat, before breaking down the growth drivers between optical communications products and optical transmission components and assessing AI-related demand based on hollow-core fiber deliveries. Finally, it determines the target price using FY27F EPS and the median P/E of H-share cable companies.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Analysis of AIDC demand and the supply of high-end optical fibers and components

  The report uses robust AIDC demand and supply shortages to explain product price increases and, on this basis, explains why gross margin and earnings improved significantly.

• Industry/Sector Analysis FrameworkVolume-Price Breakdown

  Breakdown of shipments, prices, and product mix

  The report separately examines demand for high-end optical fibers, shipments of optical connectivity components, optical fiber price increases, and changes in product mix to distinguish the sources of revenue growth from those of margin expansion.

• Valuation MethodPE/PEG valuation

  FY27F P/E valuation

  The HKD 266.00 target price is based on FY27F EPS of CNY 9.75 and a P/E multiple of 23.7x, in line with the median P/E of H-share cable companies listed by WIND.

Asset mapping & comparison

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

• Yangtze Optical Fibre and Cable (YOFC, 6869.HK)

  The report's primary covered company, which is expected to benefit from robust global AIDC demand and tight supply for high-end optical fibers and optical components.

  Strengths

  Both the high-end optical fiber and connectivity component businesses achieved rapid growth, gross margin improved significantly, and cumulative hollow-core fiber deliveries exceeded 10,000 fiber-core kilometers as of June 2026.

  Weaknesses

  Growth could be constrained if optical fiber demand from Chinese telecom operators, expansion of the AI networking business, or overseas market expansion is weaker than expected.

  Comparison

  The target valuation uses a 23.7x FY27F P/E, in line with the median P/E of H-share cable companies listed by WIND.

  Risks

  The target price faces downside risks from weaker-than-expected demand from Chinese telecom operators, expansion of the AI networking business, and overseas market development.

• EverProX (300548 CH, not rated)

  A subsidiary of YOFC whose shipments of optical connectivity components are viewed by Nomura as one of the main drivers of revenue growth in the optical transmission components business.

  Strengths

  Shipments of optical connectivity components supported the optical transmission components business's 55% YoY revenue growth.

Key data

• 1H26 RevenueCNY 9.8bnUp 54% YoY
• 1H26 EarningsCNY 2.9bnUp 889% YoY, close to the upper end of the previous guidance of CNY 2.4bn-3bn
• 2Q26 Revenue GrowthYoY +75%, QoQ +65%3% below Nomura's forecast
• 2Q26 Earnings GrowthYoY +1587%, QoQ +391%117% above Nomura's forecast
• 1H26 Gross Margin53.4%Up 25.1 ppts YoY
• 2Q26 Gross Margin60.5%Up 31.8 ppts YoY and 19.0 ppts QoQ
• Optical Communications Products RevenueCNY 6.1bnUp 59% YoY, driven by demand for high-end optical fibers
• Optical Transmission Components RevenueCNY 2.2bnUp 55% YoY, driven by shipments of optical connectivity components
• Cumulative Hollow-Core Fiber DeliveriesMore than 10,000 fiber-core kilometersAs of June 2026
• FY27F EPSCNY 9.75Basis for target price valuation
• Target Valuation Multiple23.7x FY27F P/EIn line with the median P/E of H-share cable companies listed by WIND
• Target PriceHKD 266.00Maintained unchanged

Impact & implications

Nomura believes that AIDC-driven demand for high-end optical fibers and optical components, together with tight supply, has significantly increased YOFC's gross margin and earnings through price increases and product-mix upgrades. Progress in cumulative hollow-core fiber deliveries and demand for MPO connectors support its positive view of subsequent AI-related business, while the target price remains dependent on the realization of FY27F earnings and the 23.7x P/E valuation basis.

Risks

• Optical fiber demand from Chinese telecom operators is weaker than expected.
• Expansion of the AI networking business is weaker than expected.
• YOFC's overseas market expansion falls below expectations.

What to watch

• Whether demand from Chinese telecom operators recovers faster than expected.
• Whether the penetration of high-end AI products, such as hollow-core fibers, accelerates faster than expected.
• Whether overseas market expansion proceeds faster than expected.
• Whether AIDC demand and tight supply conditions for high-end optical fibers and components can be sustained.