Shenzhen T&S Communication (300570) Report Interpretation

Overview

This earnings-review report examines whether Shenzhen T&S Communication can benefit from an emerging NPO/CPO optical-interconnect cycle. Nomura concludes that stronger high-end connector demand, capacity expansion and faster optical-component shipments support a Buy upgrade despite mixed 2Q26 results, margin pressure and increasing competition.

Core views

Nomura characterizes Shenzhen T&S's 2Q26 results as mixed: revenue growth accelerated, but gross profit margin remained under pressure because of higher costs and changes in product mix. The institution nevertheless sees a stronger multi-year demand backdrop for high-end MPO connectors, MMC connectors and shuffle-box products. Its central demand thesis is that growing shipments of high-end optical transceivers, together with wider adoption of near-field packaging optics (NPO) and co-packaged optics (CPO) in scale-up networks, will raise demand for these products. The report links this view to NVIDIA's 14 August announcement that Spectrum-X CPO switches had entered full mass production. Nomura believes the resulting CPO/NPO demand should benefit T&S's high-end connectors and shuffle-box products through its partnership with a major AI customer, Corning. It considers T&S a leading supplier of high-end optical connectors and components, although it also expects competition to intensify. The company has announced a CNY720mn investment project in Shenzhen; Nomura sees the associated capacity expansion as addressing a prior concern about insufficient capacity. In the institution's view, undersupply in the high-end optical-connector market could create sequential growth opportunities in 2H26F and 2027F. Nomura sharply raises its operating forecasts to reflect this demand outlook and faster optical-component shipments. FY26-28F revenue estimates increase by 19.6%-39.6%, while earnings estimates increase by 18.5%-40.8%. The optical-components segment forecast is raised by 19.9%-40.1%. China-market revenue forecasts are raised by 253.3%-824.1%, reflecting accelerating NPO/CPO deployment in China. These growth assumptions are partly offset by lower FY26-27F gross-margin forecasts, reduced by 2.4-2.9 percentage points for cost increases and product-mix dilution; Nomura still expects accelerating top-line growth to drive the higher earnings outlook. The revised financial model forecasts revenue of CNY2,615mn in FY26F, CNY4,182mn in FY27F and CNY6,012mn in FY28F, with normalized EPS of CNY2.38, CNY3.99 and CNY5.97, respectively. Nomura expects shuffle-box revenue to grow at a 167% CAGR in FY26-28F from a low base. It estimates AI-related revenue—including MPO, MMC, ferrules and shuffle boxes—will grow at an 82% CAGR and represent 58% of total sales in FY28F. Relative to WiND consensus, Nomura is more cautious for FY26F, with revenue and earnings forecasts 7% and 3% below consensus, respectively, due to shipment-volume and margin concerns; for FY27-28F, its revenue forecasts are 3%-18% above consensus and its earnings forecasts are -3% to 16% versus consensus as it becomes more positive on CPO penetration and MPO demand. On valuation, Nomura upgrades the stock to Buy from Neutral and raises the target price to CNY231.5 from CNY138. The new target is based on 58x FY27F EPS of CNY3.99, compared with the prior 45x multiple, and is described as consistent with a FY26-28F earnings CAGR of 58%. At the stated closing price of CNY199.27, the target implies 16.2% upside; the report states the stock was trading at 49.9x FY27F EPS.

Analysis framework

Nomura starts with the mixed quarterly operating picture, then assesses the NPO/CPO-driven optical-connectivity demand cycle, T&S's supply-chain position and planned capacity expansion. It revises segment and regional revenue assumptions, incorporates lower gross-margin assumptions, compares its forecasts with WiND consensus, and values the company by applying a price-to-earnings multiple to FY27F EPS.

Methodology notes

• Industry AnalysisSupply-demand framework

  Assessment of NPO/CPO adoption, high-end optical-transceiver shipments, connector demand and potential supply undersupply.

  Nomura uses expected demand growth and constrained high-end connector supply to explain potential sequential growth in 2H26F and 2027F.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  CPO switch mass production and adoption are linked to demand for T&S's MPO/MMC connectors and shuffle-box products through the optical-connectivity supply chain.

  The report traces how deployment of CPO/NPO systems can translate into demand for T&S products, including through its partnership with Corning.

• Valuation methodsP/E and PEG Valuation

  A 58x FY27F P/E multiple is applied to FY27F EPS of CNY3.99 to derive the target price.

  The valuation frames the selected earnings multiple as in line with Nomura's projected FY26-28F earnings CAGR of 58%.

Asset mapping & comparison

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

• Shenzhen T&S Communication (300570.SZ)

  Primary covered company expected to benefit from NPO/CPO adoption and high-end optical-connector demand.

  Strengths

  Leading supplier of high-end optical connectors and components; planned CNY720mn Shenzhen capacity expansion; exposure to MPO, MMC and shuffle-box demand.

  Weaknesses

  Gross profit margin is under pressure from cost increases and product-mix changes.

  Comparison

  Nomura is below WiND consensus on FY26F revenue/earnings but above or broadly near consensus for later-year forecasts as CPO penetration rises.

  Risks

  Weaker optical-component demand or CPO penetration, customer supply-chain diversification, competition and geopolitical risks.

• NVIDIA (NVDA.US)

  Example of an ecosystem trigger: its Spectrum-X CPO switches entering mass production supports the report's CPO demand thesis.

  Strengths

  Mass production announcement is cited as evidence of CPO commercialization.

  Comparison

  Not rated by Nomura in this report.

• Corning (GLW.US)

  Major AI customer and partner through which CPO/NPO demand may benefit T&S's high-end connectors and shuffle-box products.

  Strengths

  Provides a supply-chain link to AI optical-connectivity demand.

  Comparison

  Not rated by Nomura in this report.

  Risks

  Customer supply-chain diversification is an explicit downside risk.

Key data

• Rating actionBuy, upgraded from NeutralCurrent report action.
• Target priceCNY231.5Raised from CNY138; based on 58x FY27F EPS.
• Closing price and implied upsideCNY199.27; +16.2%Stated price basis and target-price implication.
• FY26-28F revenue forecast revision+19.6% to +39.6%Reflects stronger MPO connector demand and faster shipments.
• FY26-28F earnings forecast revision+18.5% to +40.8%Higher top-line growth more than offsets lower margin assumptions.
• FY26-27F gross-margin forecast revision-2.4 to -2.9 percentage pointsReflects cost increases and product-mix changes.
• FY28F revenue and normalized EPSCNY6,012mn and CNY5.97Nomura forecast.
• AI-related revenue outlook82% FY26-28F CAGR; 58% of FY28F salesIncludes MPO, MMC, ferrules and shuffle boxes.
• Shuffle-box revenue outlook167% FY26-28F CAGRFrom a low base.

Impact & implications

Nomura argues that the NPO/CPO deployment cycle could shift T&S toward faster growth in high-end optical components, with China deployment and expanded capacity important to the forecast. The institution acknowledges that near-term margin dilution and competition remain constraints on the path to its target price.

Risks

• Weaker-than-expected demand for the optical-component market could impede the target price.
• CPO penetration could be weaker than Nomura expects.
• A top customer's supply-chain diversification could reduce demand for T&S products.
• Geopolitical risks could impede the target-price outcome.

What to watch

• Adoption and deployment of NPO/CPO, particularly in China scale-up networks.
• High-end optical-transceiver shipments and resulting MPO/MMC connector demand.
• Execution of the CNY720mn Shenzhen investment project and the resulting capacity expansion.
• Gross-margin effects from costs and product mix.
• The pace of competition and any customer supply-chain diversification.