China optical communication sector: Nomura sees limited direct impact from the US Transceiver Act and remains positive on China optical-communications leaders

Overview

This quick note assesses three recent developments affecting China’s optical-communications supply chain: proposed US restrictions on Chinese optical transceivers, new domestic fiber capacity plans, and policy-driven switch-chip localization. Nomura remains constructive on selected transceiver, fiber and networking names, while identifying longer-term policy and supply risks.

Core views

China AI-supply-chain stocks corrected on 28 September as investors became more cautious ahead of Golden Week amid geopolitical and macro uncertainty. Nomura identifies two optical-communications developments that could worsen those concerns: a proposed US “Protecting National Security Systems from Chinese Optical Transceivers Act” and Hengtong Optic-Electric’s planned A-share private placement to expand fiber-related capacity. Separately, reporting that China’s State-owned Assets Supervision and Administration Commission is surveying state-owned data centers’ dependence on Broadcom switches points to a stronger localization push. Despite these overhangs, Nomura argues that underlying AI-infrastructure demand remains robust. It expects leaders in optical transceivers, particularly InnoLight, to retain solid fundamentals because 1.6T transceivers remain in short supply and NPO commercialization could create further demand. On the proposed Transceiver Act, Nomura judges the direct commercial impact on InnoLight and Eoptolink to be minimal because the bill targets procurement of Chinese-manufactured transceivers for US federal national-security systems, rather than the private-sector AI hyperscalers that account for most of the companies’ revenue. The report nevertheless sees a possible future addition of Chinese companies to the Covered List as a long-term policy overhang. Nomura maintains that InnoLight’s leading position and the 1.6T supply shortage should support its fundamentals, and says recent share weakness has largely priced in the FCC-restriction scenario. On fiber capacity, Nomura considers market concerns about near-term oversupply overdone. Hengtong proposes to raise no more than CNY6.64bn through a private placement of up to 740 million A-shares across nine projects, including 800 tonnes per year of new preform capacity and 1,200 tonnes per year of high-end optical quartz-material capacity. Its projects also include specialty-fiber lines, 2.5mn fkm per year of multimode fiber, and 50mn fkm per year of MPO cables. FiberHome’s July plan, which could raise up to CNY2.91bn, includes 600 tonnes per year of preform capacity, alongside multimode, specialty-fiber, Thailand production-base and hollow-core-fiber projects. Nomura believes the two top-tier manufacturers’ plans are not aggressive relative to the global AI-infrastructure-driven demand gap, so they are unlikely to reverse the near-term supply-demand structure. However, Hengtong’s announcement may reinforce longer-term oversupply concerns in China’s optical-fiber market. Nomura remains positive on near-term trading opportunities in YOFC and Shenzhen T&S Communication through their potential exposure to global fiber and fiber-connector markets. For switch chips, Nomura interprets the SASAC survey into Broadcom-chip use at Chinese data centers as evidence of a strong policy mandate to increase domestic content. The report cites an estimated Broadcom-switch penetration rate of as much as 90% among state-owned companies. Domestic vendors have made progress but still trail global leaders by about one to two generations: HiSilicon has commercially deployed 51.2T chips based on 112G SerDes and Huawei’s UB protocol, while Centec Networks shipped 25.6T chips supporting 800G ports and UEC standards to Chinese cloud-service providers in 2026 and still has a 51.2T product in R&D. Broadcom is already shipping 102.4T switch chips. Nomura therefore views localization as a long path, but an inevitable one, and sees Unisplendour’s cooperation with Centec as positioning it to benefit over the long run. Nomura recommends InnoLight, YOFC, Shenzhen T&S Communication and Unisplendour. The report’s disclosed valuation pages show Buy ratings for these companies as of 28 September 2026, with stated target prices including CNY51.00 for Unisplendour, HKD1,375.00 for Zhongji InnoLight’s H-share, CNY231.50 for Shenzhen T&S Communication, HKD1,595.00 for Zhongji InnoLight’s other listed line, and HKD266.00 for YOFC.

Analysis framework

Nomura assesses the immediate scope and revenue exposure of the proposed US legislation, compares planned fiber capacity additions with the AI-infrastructure-driven demand gap, and benchmarks Chinese switch-chip capabilities against Broadcom. It then links these industry developments to selected companies’ competitive positions and disclosed valuation frameworks.

Methodology notes

• Industry AnalysisSupply-demand framework

  Supply-demand analysis of 1.6T transceivers and optical-fiber/preform capacity

  The report uses the shortage of 1.6T transceivers and the global AI-infrastructure demand gap to judge that announced capacity additions are unlikely to upset the near-term market balance.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  AI-infrastructure demand and domestic switch-chip localization across the optical-communications supply chain

  Nomura traces how AI data-center investment, regulatory restrictions and localization policy affect transceiver makers, fiber suppliers, switch-chip developers and networking equipment companies.

• Valuation methodsP/E and PEG Valuation

  Target prices based on forecast EPS multiples

  The disclosed company valuation pages derive target prices from FY27F or 2027F EPS multiplied by P/E benchmarks or earnings-growth-related multiples.

Asset mapping & comparison

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

• Zhongji InnoLight (300308 CH / 3308 HK)

  Recommended optical-transceiver leader expected to benefit from the 1.6T supply shortage and potential NPO commercialization.

  Strengths

  Leading market position; most revenue exposure is to private-sector AI hyperscalers rather than US federal national-security systems.

  Weaknesses

  Subject to policy overhang from possible Covered List inclusion.

  Comparison

  Nomura says Chinese domestic switch-chip players remain behind global leaders, while InnoLight is described as a transceiver leader.

  Risks

  Weaker high-end optical-module demand, fierce 400G and 800G competition, slower 800G/1.6T upgrades, and price competition affecting global exports.

• YOFC (6869 HK)

  Recommended fiber company with potential upside in global optical-fiber and fiber-connector markets.

  Strengths

  Potential exposure to AI networking and overseas-market expansion.

  Weaknesses

  Longer-term concerns about optical-fiber oversupply in China may weigh on sentiment.

  Comparison

  Its target price of HKD266.00 is based on 23.7x FY27F EPS of CNY9.75, in line with the median P/E of WIND H-share cable companies.

  Risks

  Weaker China telecom-operator fiber demand, slower AI-networking expansion, and weaker overseas expansion.

• Shenzhen T&S Communication (300570 CH)

  Recommended beneficiary of potential upside in global optical-fiber and fiber-connector markets.

  Strengths

  Exposure to optical components and potential CPO penetration.

  Weaknesses

  Dependent on customer demand and supply-chain decisions.

  Comparison

  Its CNY231.50 target price is based on 58x 2027F EPS of CNY3.99, in line with its stated FY26-28F earnings CAGR of 58%.

  Risks

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

• Unisplendour Corporation (000938 CH)

  Recommended long-run beneficiary of Chinese switch-chip localization through its cooperation with Centec.

  Strengths

  Linked to the domestic networking-switch and switch-chip localization trend.

  Weaknesses

  Domestic switch-chip suppliers still lag global leaders by around one to two generations.

  Comparison

  Its CNY51.00 target price is based on 40x FY27F EPS of CNY1.28, in line with the WIND A-share server/switch-sector median P/E.

  Risks

  Uncertainty over the H3C stake acquisition, geopolitical tensions, and margin pressure from an accelerated white-box product trend.

Key data

• Hengtong planned fund raisingUp to CNY6.64bnPrivate placement of up to 740 million A-shares across nine projects.
• Hengtong new preform capacity800 tonnes/yearPart of its fiber-related investment plan.
• Hengtong high-end optical quartz-material capacity1,200 tonnes/yearCan support future preform-capacity expansion.
• FiberHome planned fund raisingUp to CNY2.91bnIts July 2026 private-placement plan includes 600 tonnes/year of preform capacity.
• Domestic switch-chip gapApproximately 1-2 generationsNomura’s comparison of Chinese suppliers with global leaders.
• Broadcom switch-chip capability102.4TBroadcom is shipping 102.4T switch chips, versus Chinese suppliers’ deployed or developing 25.6T and 51.2T products.
• Broadcom switch penetration at state-owned companiesAs high as 90%Cited by the report from a Financial Times news report.

Impact & implications

Nomura’s central implication is that policy headlines and fiber-capacity announcements may create volatility, but do not yet overturn the favorable operating backdrop for leading AI-optics suppliers. Over time, a policy-led move toward domestic switches and switch chips could create opportunities for local networking suppliers, particularly Unisplendour through Centec.

Risks

• Chinese transceiver companies could face a longer-term policy overhang if they are added to the US Covered List.
• New optical-fiber capacity could heighten concerns about longer-term oversupply in China.
• Chinese switch-chip suppliers remain about one to two generations behind global leaders.
• For recommended optics names, weaker demand, slower technology upgrades or penetration, price competition, customer supply-chain diversification and geopolitical tensions are stated downside risks.

What to watch

• Progress of the proposed US Protecting National Security Systems from Chinese Optical Transceivers Act and any expansion of restrictions beyond government systems.
• Execution and further capacity announcements from Hengtong and FiberHome, and their effect on optical-fiber supply-demand conditions.
• Demand for 1.6T optical transceivers and the commercialization of NPO.
• Evidence of domestic switch-chip adoption by Chinese state-owned data centers and progress toward 51.2T domestic products.