Xinyisheng: Q1 2026 Revenue Doubles, FX Drag Weighs on Net Profit, Maintains Buy Rating

Overview

This report is Goldman Sachs’ commentary on Eoptolink’s (Xinyisheng, 300502.SZ) first-quarter 2026 results. Goldman Sachs maintains its Buy rating and a target price of RMB 518 for the company. The report finds that Q1 2026 revenue grew sharply year-on-year, gross margin continued to improve, but net profit fell below expectations due to FX losses. Looking ahead, the increasing share of 1.6T high-speed optical modules, silicon photonics solutions, and improved optical chip supply will support sequential revenue growth in the remaining quarters of 2026.

Core views

Goldman Sachs views Q1 2026 results as characterized by 'strong revenue and FX-driven earnings disruption.' On the revenue side, Q1 2026 revenue reached RMB 8.34 billion, up 106% YoY and essentially flat QoQ, exceeding Goldman Sachs’ estimate by about 10%, mainly supported by robust demand for optical modules driven by AI computing power. On the earnings side, gross margin further improved to 49.2% (from 48.9% in Q4 2025), reflecting improvements in manufacturing processes and a higher proportion of 1.6T and above products with greater added value. However, Q1 2026 FX losses led to increased financial expenses, resulting in net profit of RMB 2.77 billion, up 76% YoY but down 13% QoQ, 12% below Goldman Sachs’ forecast. On the demand side, the firm is optimistic about continued sequential growth in Q2-Q4 2026, driven by: 1) improved optical chip supply easing previous bottlenecks; 2) product mix upgrade toward 1.6T and above high-speed optical modules; 3) rising contribution from silicon photonics solutions; 4) accelerated capacity expansion to support ramping shipments. On the supply side, as of the end of Q1 2026, inventory rose to RMB 9 billion (from RMB 7.2 billion at the end of Q4 2025), and prepayments jumped from RMB 17 million at the end of Q4 to RMB 682 million, showing the company is stockpiling ahead for larger-scale shipments; Thailand Phase II project progress is on track. Valuation and Rating: Goldman Sachs maintains its ‘Buy’ rating and keeps the 12-month target price at RMB 518, corresponding to a forward P/E ratio of 27x for 2026—a multiple broadly consistent with the company’s average forward P/E of 29x since 2018.

Analysis framework

The report adopts a three-part analytical framework: ‘Performance Review—Growth Drivers—Valuation Anchor.’ First, it compares Q1 2026 actual results with Goldman Sachs’ forecasts item by item, explaining earnings deviations from four dimensions: revenue, gross margin, expenses (especially FX losses), and net profit. Second, it assesses the sustainability of growth in the coming quarters from two perspectives: supply (optical chip availability, capacity expansion) and demand (product structure upgrade, silicon photonics penetration). Finally, it uses the forward P/E ratio as a valuation anchor, comparing the target multiple with the company’s historical average to determine the target price.

Methodology notes

• Valuation MethodPE/PEG valuation

  Forward P/E Valuation

  The report sets the 12-month target price using a 27x forward P/E multiple based on 2026 projected earnings and compares this multiple with the company’s average forward P/E of around 29x since 2018 to assess valuation reasonableness.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Analysis of Supply Improvement and Capacity Expansion

  Short-term growth in the optical module industry depends not only on downstream AI computing demand but also on optical chip supply and capacity ramp-up. The report judges that supply bottlenecks are easing through inventory levels, prepayments, and progress on Thailand Phase II expansion.

Asset mapping & comparison

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

• Eoptolink (Xinyisheng, 300502.SZ)

  The report directly covers the target asset, benefiting from AI-driven optical module demand, upgrades to 1.6T/silicon photonics products, and improved supply

  Strengths

  Q1 2026 revenue exceeded expectations, gross margin improved YoY and QoQ; rising contribution from 1.6T and silicon photonics products; sufficient inventory and prepayments, accelerating capacity expansion

  Weaknesses

  Q1 2026 net profit fell below expectations due to FX losses; gross margin level still slightly below Goldman Sachs’ forecast (51.3%)

  Risks

  Slow ramp-up of 800G products compared to expectations; geopolitical impacts on optical module supply chain; intensified competition leading to price and margin erosion

Key data

• Q1 2026 Operating RevenueRMB 8.338 billionUp 106% YoY, essentially flat QoQ, about 10% above Goldman Sachs’ estimate
• Q1 2026 Net ProfitRMB 2.774 billionUp 76% YoY, down 13% QoQ, 12% below Goldman Sachs’ estimate
• Q1 2026 Gross Margin49.2%Up 0.3 percentage points QoQ, but below Goldman Sachs’ forecast of 51.3%
• Inventory at End of Q1 2026RMB 9 billionSignificantly up from RMB 7.2 billion at the end of Q4 2025, indicating expanded stockpiling
• Prepayments at End of Q1 2026RMB 682 millionA sharp increase from RMB 17 million at the end of Q4 2025
• Target 2026E PE27xThe company’s average forward PE since 2018 is around 29x
• 12-Month Target PriceRMB 518Remains unchanged

Impact & implications

The report concludes that although Q1 2026 net profit was temporarily pressured by FX factors, both revenue and product structure showed positive signals. Rising contributions from 1.6T and silicon photonics products, improved optical chip supply, and accelerated capacity expansion in Thailand Phase II will support sequential growth in the remaining quarters of 2026. In terms of valuation, the target price’s 2026 PE is close to the company’s historical average, reflecting the firm’s confidence in the company’s sustained high growth. For the market, attention should be paid to the share of 1.6T products in subsequent quarters, gross margin trends, and the impact of exchange rate fluctuations on financial expenses.

Risks

• Slow ramp-up of 800G products compared to expectations
• Geopolitical risks could affect the optical module supply chain
• Intensified competition leading to price erosion and margin decline

What to watch

• Sequential revenue growth in Q2-Q4 2026 and changes in the contribution of 1.6T/silicon photonics products
• Extent of improvement in optical chip supply
• Progress of Thailand Phase II capacity expansion
• Impact of gross margin and exchange rate fluctuations on net profit