Price Increases and Product-Mix Upgrades Drive YOFC's Second-Quarter Profit Well Above Expectations

Overview

This report reviews YOFC's 1H26 and 2Q26 results, focusing on the reasons profit significantly exceeded expectations. Nomura attributes the earnings surge to price increases resulting from robust AIDC demand and supply shortages, a higher share of high-end products, and increased shipments of optical connectivity components. It accordingly maintains its Buy rating and HKD266.00 target price.

Core views

YOFC announced its 1H26 results after market close on August 21, 2026: revenue was CNY9.8bn, up 54% YoY, while profit was CNY2.9bn, up 889% YoY and near the upper end of its previous CNY2.4bn-3.0bn profit guidance. On a quarterly basis, 2Q26 revenue increased 75% YoY and 65% QoQ but was still 3% below Nomura's forecast; profit for the same period increased 1587% YoY and 391% QoQ, coming in 117% above Nomura's forecast. This indicates that slightly weaker-than-expected revenue did not prevent profit from substantially exceeding expectations, with the earnings improvement primarily stemming from pricing and margins rather than merely relying on revenue expansion. Nomura believes that robust AIDC demand and supply shortages drove product price increases, while a shift in the optical fiber product mix toward high-end categories further amplified earnings leverage. The 1H26 gross margin rose to 53.4%, up 25.1 percentage points YoY; the 2Q26 gross margin reached 60.5%, up 31.8 percentage points YoY and 19.0 percentage points QoQ. The report therefore directly links the second-quarter earnings surge to price increases and changes in product mix: amid strong demand and tight supply, both the share and selling prices of high-end products rose, causing profit growth to significantly outpace revenue growth. By business segment, 1H26 optical communication product revenue increased 59% YoY to CNY6.1bn, primarily driven by demand for high-end optical fiber; optical transmission component revenue increased 55% YoY to CNY2.2bn, with the report attributing the growth to shipments of optical connectivity components, mainly contributed by subsidiary EverProX (300548 CH, Not rated). Both major business segments achieved revenue growth exceeding 50%, indicating that high-end optical fibers and connectivity components are simultaneously benefiting from demand related to AI data center construction. Regarding product progress, the company disclosed that cumulative deliveries of hollow-core fiber had exceeded 10,000 fiber-km as of June 2026. Nomura expects YOFC to continue benefiting from demand for AI optical fiber, including hollow-core fiber, as well as demand for optical components such as MPO connectors. The report believes that the company's product positioning in high-end optical fibers and components places it favorably to benefit from robust global AIDC demand and tight supply. In terms of valuation, Nomura maintains its Buy rating and HKD266.00 target price. The target price is based on FY27F EPS of CNY9.75 and a P/E multiple of 23.7x, in line with the median P/E of H-share cable companies shown by WIND. The stock's benchmark index is the Hang Seng Index, and the Buy rating in the report indicates an expectation that the stock will outperform this benchmark over the next 12 months. The closing price on August 21, 2026 was HKD140.00. The report also lists downside and upside conditions affecting achievement of the target price. Downside risks include weaker-than-expected optical fiber demand from Chinese telecom operators, weaker-than-expected expansion of the AI networking business, and slower-than-expected overseas market expansion by YOFC. Conversely, a faster recovery in demand from Chinese telecom operators, faster-than-expected penetration of high-end AI products such as hollow-core fiber, or faster-than-expected overseas expansion could provide upside.

Analysis framework

Nomura first compares 1H26 and 2Q26 revenue and profit against YoY and QoQ figures, company guidance, and its own forecasts to identify the sources of the earnings beat. It then assesses changes in gross margin to determine that price increases and product-mix upgrades are the core drivers of earnings leverage. The report subsequently breaks down revenue growth into optical communication products and optical transmission components, uses cumulative hollow-core fiber deliveries to validate demand for high-end products, and finally derives the target price using FY27F EPS and the median P/E of comparable H-share cable companies, while outlining upside and downside risks under scenarios involving demand, product penetration, and overseas expansion.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  AIDC Demand, Supply Shortages, and Product Price Increases

  The report explains optical fiber product price increases through robust demand and tight supply, and further illustrates why price increases and a higher share of high-end products would drive gross margin and profit growth significantly above revenue growth.

• Valuation MethodP/E and PEG Valuation

  FY27F Comparable P/E Valuation

  The HKD266.00 target price is derived by applying a 23.7x P/E multiple to FY27F EPS of CNY9.75, with the valuation multiple in line with the median P/E of H-share cable companies shown by WIND.

Asset mapping & comparison

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

• YOFC (6869.HK)

  The report's core covered company, which is expected to benefit from robust global AIDC demand and tight supply for high-end optical fibers and optical connectivity components.

  Strengths

  Stronger pricing power, with significant increases in 1H26 and 2Q26 gross margins; cumulative hollow-core fiber deliveries exceeded 10,000 fiber-km, and the company has a portfolio of high-end products such as MPO connectors.

  Weaknesses

  Growth remains dependent on optical fiber demand from Chinese telecom operators, expansion of the AI networking business, and overseas market development.

  Comparison

  The target price applies a 23.7x FY27F P/E multiple, in line with the median P/E of H-share cable companies shown by WIND.

  Risks

  Weaker-than-expected demand from Chinese telecom operators, AI network expansion, or overseas market development could impede achievement of the target price.

• EverProX (300548 CH)

  A subsidiary of YOFC; the report believes its shipments of optical connectivity components were the main driver of the optical transmission component segment's 55% YoY revenue growth in 1H26.

  Strengths

  Shipments of optical connectivity components contributed to the growth of YOFC's optical transmission component business.

  Comparison

  The report marks it as Not rated.

Key data

• 1H26 RevenueCNY9.8bnUp 54% YoY
• 1H26 ProfitCNY2.9bnUp 889% YoY, near the upper end of the previous CNY2.4bn-3.0bn guidance
• 2Q26 Revenue Growth+75% YoY, +65% QoQ3% below Nomura's forecast
• 2Q26 Profit Growth+1587% YoY, +391% QoQ117% above Nomura's forecast
• 1H26 Gross Margin53.4%Up 25.1 percentage points YoY
• 2Q26 Gross Margin60.5%Up 31.8 percentage points YoY and 19.0 percentage points QoQ
• Optical Communication Product RevenueCNY6.1bnUp 59% YoY in 1H26, driven by demand for high-end optical fiber
• Optical Transmission Component RevenueCNY2.2bnUp 55% YoY in 1H26, mainly driven by shipments of optical connectivity components
• Cumulative Hollow-Core Fiber DeliveriesOver 10,000 fiber-kmAs of June 2026
• Target PriceHKD266.00Maintained
• Target Price Valuation Basis23.7x FY27F EPS CNY9.75P/E is in line with the median for H-share cable companies shown by WIND
• Closing PriceHKD140.00August 21, 2026

Impact & implications

The report believes that YOFC's substantial profit beat in the current period reflects its pricing power and high-end product-mix upgrades amid tight AIDC supply and demand, rather than being driven solely by revenue growth. Products such as hollow-core fiber and MPO connectors enable the company to participate in demand for both optical fiber and connectivity components from AI data centers; whether this thesis remains valid depends on demand from Chinese telecom operators, AI network expansion, high-end product penetration, and overseas market progress.

Risks

• Optical fiber demand from Chinese telecom operators is weaker than expected.
• Expansion of the AI networking business is weaker than expected.
• YOFC's overseas market expansion falls below expectations.

What to watch

• The pace of recovery in optical fiber demand from Chinese telecom operators.
• Expansion of the AI networking business and the pace of penetration of high-end AI products such as hollow-core fiber.
• Progress in YOFC's overseas market expansion.