2Q26 NP guidance beats Citi expectations; AI optical device demand continues to support the Buy view

Overview

This report is Citi's commentary on Suzhou TFC Optical Communication (300394.SZ)'s earnings guidance. The company's guidance for 1H26 and 2Q26 net profit and recurring net profit all indicate YoY growth, with the midpoint of 2Q26 net profit clearly above Citi's forecast. The report maintains a Buy rating and a target price of Rmb419/share, based on the core thesis that AI infrastructure buildout continues to drive demand for high-speed optical devices, while higher optical engine utilization and improved EML supply in 2H26 could bring further growth.

Core views

Citi's core views are: first, the midpoint of 2Q26 net profit guidance at RMB722mn is 17% above Citi's forecast, with earnings outperforming expectations; second, demand is supported by global AI infrastructure buildout, and high-speed optical devices remain in an upcycle; third, there are still short-term pressures from FX and material supply constraints, but these may ease marginally in 2H26; fourth, valuation is based on 34.3x 2027E P/E, corresponding to a target price of Rmb419/share, while also factoring in the potential for CPO re-rating and partially offsetting with the risk of substitution in the 2027 1.6T/800G business.

Analysis framework

The report mainly uses an earnings guidance comparison and relative valuation framework: it first compares the company's 2Q26 net profit guidance with Citi's forecast and market VAe, then breaks down YoY growth into demand, FX, and supply chain factors; on valuation, it uses 2027E P/E as the basis and applies 34.3x P/E as the target valuation multiple.

Methodology notes

• Earnings trackingEarnings guidance comparison

  Comparison of 2Q26 net profit guidance midpoint with Citi forecast and VAe

  Using the midpoint of the company's 2Q26 net profit guidance range of RMB722mn, compare it with Citi's forecast of RMB616mn and VAe of RMB707mn to assess whether earnings are ahead of expectations.

• Valuation methodsP/E method

  34.3x 2027E P/E

  The target price of Rmb419/share is based on 34.3x 2027E P/E, which the report says is around the company's five-year average and reflects the opportunity for CPO re-rating, partially offset by the risk of substitution in the 2027 1.6T/800G business.

Asset mapping & comparison

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

• 300394.SZ

  Listed company stock covered in the report

  Strengths

  2Q26 NP guidance beat Citi expectations; demand for high-speed optical devices is supported by global AI infrastructure buildout; 2H26 may be driven by higher optical engine utilization and improved EML supply.

  Weaknesses

  FX headwinds and some material supply constraints offset growth; the 2027 1.6T/800G business may face substitution or diversion from CPO.

  Comparison

  The midpoint of 2Q26 net profit guidance at RMB722mn is 17% above Citi's forecast of RMB616mn and 2% above VAe of RMB707mn.

  Risks

  Slower-than-expected new product development, slower-than-expected AI development and data center investment, U.S.-China tech tensions, EML or upstream component supply constraints, intensifying competition, and delayed large-scale CPO deployment.

Key data

• 1H26 net profit guidanceRMB1,124–1,304mnUp 25.0–45.0% YoY.
• 2Q26 net profit guidanceRMB632–812mnUp 12.5–44.5% YoY; midpoint RMB722mn.
• Difference between 2Q26 net profit midpoint and Citi forecast+17%RMB722mn versus Citi forecast of RMB616mn.
• Difference between 2Q26 net profit midpoint and VAe+2%RMB722mn versus VAe of RMB707mn.
• 1H26 recurring net profit guidanceRMB1,089–1,284mnUp 25.6–48.0% YoY.
• 2Q26 recurring net profit guidanceRMB596–791mnUp 11.3–47.8% YoY.
• Current priceRmb211.370As of 2026-07-17 15:00.
• Target priceRmb419.000Based on 34.3x 2027E P/E.
• Expected share price return98.2%Expected share price return disclosed in the report.
• Expected total return98.8%Includes expected dividend yield of 0.5%.
• Market capitalizationRmb230,568M / US$34,061MAs disclosed in the report.
• Earnings release date2026-08-18 after marketThe company is expected to release 1H/2Q26 results.

Impact & implications

This guidance reinforces the growth narrative for Suzhou TFC Optical Communication as a beneficiary in the AI optical communication value chain. If optical engine utilization rises in 2H26 and EML supply constraints ease, revenue and profit elasticity may continue to be released; however, if AI infrastructure investment, CPO deployment, or upstream supply fall short of expectations, the upside implied by the current high target price may be difficult to realize.

Risks

• New product development is slower than expected.
• Global AI development is slower than expected.
• AI infrastructure and data center investment is slower than expected.
• U.S.-China tech tensions affect the supply chain or demand.
• EML or upstream component supply constraints persist.
• Industry competition intensifies.
• Large-scale CPO deployment in scale-out and scale-up scenarios is delayed.
• FX headwinds put pressure on profits.

What to watch

• Formal 1H/2Q26 results to be released after market on 2026-08-18.
• Actual progress of higher optical engine utilization in 2H26.
• Whether supply constraints for EML and other upstream components ease.
• The pace of global AI infrastructure and data center capex.
• CPO deployment progress and its substitution impact on the 1.6T/800G business.
• The impact of RMB exchange rates and FX gains/losses on margins.