The long-term CPO opportunity remains, but key customer and competitive risks drive the rating down to Neutral

Overview

This report is Nomura’s company research and rating change note on Shenzhen T&S Communication. The report argues that the company, as a key global MPO supplier, is well positioned to benefit from growth in optical communications demand for AI data centers, upgrades to 1.6T/3.2T technologies, and higher CPO adoption in scale-up and scale-out networks. However, recent 4Q25 results missed expectations, key customer Corning faces higher order and in-house production risks, and the entry of competitors such as Taiwanese vendors has led Nomura to lower earnings forecasts, valuation multiples, and the investment rating.

Core views

The core view is that the long-term growth story and near-term risks coexist. Positive factors include optical demand from AI data centers and growth opportunities for high-end MPO, MMC, and shuffle box in the CPO market; negative factors include the sharp 4Q25 decline, Corning still contributing 68.5% of revenue, customer supply chain diversification, and intensified competition. Nomura therefore downgraded the rating from Buy to Neutral and stated that, within China’s optical communications sector, it prefers InnoLight (300308 CH, Buy).

Analysis framework

The report reaches its conclusion by combining a review of company FY25 and 4Q25 results, revisions to revenue forecasts by business line and geography, analysis of customer structure, assessment of the competitive landscape, and a P/E valuation approach. The target price is based on 45x 2027F EPS of CNY3.06, corresponding to a FY26-28F earnings CAGR of 45%, with CSI300 used as the benchmark index.

Methodology notes

• Valuation methodsP/E multiple valuation

  Calculate target price by multiplying forecast EPS by the target P/E ratio

  Nomura set the target price at CNY138, based on 45x 2027F EPS of CNY3.06; the prior valuation multiple was 50x, and the adjustment reflects competition and customer concentration risks.

• Fundamental forecastEarnings forecast revision

  Adjust revenue and earnings forecasts based on orders, capacity, gross margin, and the competitive environment

  The report cut FY26-27F revenue forecasts by 22.5%-35.3% and earnings forecasts by 32.1%-40.6%, and introduced FY28F forecasts for the first time, with revenue and earnings expected to grow 34% and 38% year over year, respectively.

Asset mapping & comparison

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

• Shenzhen T&S Communication（300570.SZ）

  Covered company

  Strengths

  A key global supplier of MPO products, benefiting from optical demand in AI data centers, the 1.6T/3.2T upgrade cycle, and higher CPO adoption.

  Weaknesses

  Weak 4Q25 results, high customer concentration, heavy reliance on Corning, and a slower pace of core MPO capacity expansion and shipments.

  Comparison

  Nomura said it prefers InnoLight (300308 CH, Buy) within China’s optical communications sector.

  Risks

  Optical component demand weaker than expected, CPO penetration weaker than expected, key customer supply chain diversification, and geopolitical risks.

• Corning（GLW US）

  Key customer

  Strengths

  Still Shenzhen T&S Communication’s largest customer in FY25, contributing 68.5% of revenue.

  Weaknesses

  Its optical communications revenue growth does not match T&S’s revenue growth from this customer, and a rising in-house production ratio may reduce external orders.

  Comparison

  Corning’s optical communications segment revenue grew 35% year over year in FY25, while T&S’s revenue from this customer grew only 10% year over year.

  Risks

  Supply chain diversification and in-house production could weaken T&S’s order share.

• InnoLight（300308 CH）

  Peer and preferred name in the sector

  Strengths

  Nomura prefers this company in China’s optical communications sector and rates it Buy.

  Weaknesses

  This report does not discuss its detailed financial weaknesses.

  Comparison

  Compared with T&S being downgraded to Neutral, InnoLight remains Nomura’s preferred name.

  Risks

  This report does not provide a complete risk list for InnoLight.

Key data

• Rating changeDowngraded from Buy to NeutralClearly shown in the report title and cover page.
• Target priceCNY138.00Cut from CNY148.00, based on 45x 2027F EPS of CNY3.06.
• Closing priceCNY127.15As of 2026-04-10.
• 4Q25 revenue/earnings yoy change-28% / -67%The report believes this was mainly driven by lower orders from key customers.
• FY25 revenue/earnings yoy change+12% / +14%Below Nomura’s forecasts of 14.3% and 23.5%, respectively.
• Key customer revenue share68.5%Corning contributed 68.5% of total revenue in FY25, versus 70% in FY24.
• CPO-related revenue forecastFY27F CNY591mn, 18% of total revenueDriven by contributions from high-end MPO and shuffle box products in the CPO market.
• FY26-27F earnings forecast cut32.1%-40.6%Driven by slower revenue growth and gross margin dilution.

Impact & implications

The investment implication of the report is that CPO and AI data centers still support the company’s long-term growth narrative, but near-term valuation and rating need to reflect customer concentration, order volatility, and intensifying competition. If Corning continues to raise its in-house production ratio or brings in more suppliers, growth and gross margin in the company’s core MPO business may come under pressure; conversely, if CPO penetration accelerates faster than expected and the company gains a larger share in high-end MPO, MMC, and shuffle box, long-term revenue optionality could still improve.

Risks

• Optical component demand weaker than expected.
• CPO penetration weaker than expected.
• Key customer Corning diversifies its supply chain or increases its in-house production ratio.
• Competition in the CPO market intensifies from Taiwanese vendors such as Browave and Bizlink.
• Geopolitical risks.

What to watch

• Changes in Corning orders, its in-house production ratio, and supplier share allocation.
• The pace of volume ramp-up for high-end MPO, MMC, and shuffle box in the CPO market.
• Whether FY26-27F revenue and earnings forecasts are revised down further.
• Revenue growth in overseas markets and recovery in revenue from the China market.
• Whether gross margin remains under pressure from capacity utilization and competitive price cuts.