Optical fiber prices and AI product upgrades support YOFC's 2H growth; Goldman Sachs raises earnings forecasts but maintains Neutral

Overview

The report addresses three major debates following YOFC's 2Q26 results: optical fiber supply and demand, the pricing outlook and industry valuation. Goldman Sachs believes recent price increases, AI data center product upgrades and the rollout of new projects will support sequential growth in 2H26, and it significantly raises its earnings forecasts; however, given that medium- to long-term supply growth is expected to outpace demand, it maintains its Neutral rating.

Core views

YOFC's 2Q26 net profit increased 606% QoQ to Rmb2.4bn, in line with the company's previously announced guidance range of Rmb1.9bn—Rmb2.5bn, mainly driven by higher average selling prices for optical fiber products. 2Q26 gross margin reached 60.5%, above Goldman Sachs' expectation and also significantly higher than 41.5% in 1Q26 and 28.7% in 2Q25, indicating that price increases have translated meaningfully into profitability. Goldman Sachs expects 2H26 results to continue growing sequentially: more optical fiber projects will begin reflecting higher prices, while the product mix will shift toward higher-ASP AI data center solutions. On supply and demand, investors are concerned about announced capacity expansions by existing manufacturers and new entrants such as Han's Laser and Hoshine Silicon. Management believes the new capacity will not quickly translate into effective supply because new entrants may need several years to meet stringent requirements for production processes, yields and product performance, while also facing raw-material constraints; longer delivery lead times for optical fiber equipment will also slow the ramp-up to mass production. Goldman Sachs forecasts a 4% CAGR for optical fiber demand during 2025—2030 versus 6% supply growth, and expects supply to exceed demand by 2% by 2028. This suggests that the slow near-term capacity ramp-up is favorable for price stability, although medium-term pressure remains as supply grows faster than demand. Pricing signals remain strong at present. Based on CRU data, the report states that the price of G652.D optical fiber in China rose to Rmb85.7/fkm, compared with figures of Rmb83.4/fkm and Rmb81.9/fkm, and concludes that pricing remained strong in 3Q26; the chart title also indicates that the product remained at a high level in August 2026. Prices for G657.A1 and G657.A2 also improved sequentially in August 2026. China Mobile restarted its 2026—2027 optical fiber procurement in August and raised the maximum price cap from Rmb71/fkm to Rmb80/fkm. Goldman Sachs therefore expects optical fiber prices to remain high in 2H26, with YOFC's new projects gradually benefiting from higher pricing levels. Product mix upgrades represent another key growth driver. Goldman Sachs remains positive about the company's transition from the traditional telecommunications market toward the AI data center market and its expansion into polarization-maintaining fiber (PMF) to capture CPO/NPO-related opportunities. Subsidiary EverProx (300548.SZ) recently announced that it had signed a four-year long-term agreement with a customer to provide scale-across solutions, with a contract value of no less than Rmb4.5bn, providing clear order support for the data center business. However, this growth thesis still depends on the intensity of AI capital expenditure by data center customers and the commercialization progress of the relevant products. After incorporating the 2Q26 results, Goldman Sachs raised its 2026—2028 earnings forecasts by 44%, 36% and 12%, respectively, mainly reflecting higher optical fiber prices, AI solutions-driven revenue growth and higher gross margins resulting from improved pricing and scale. On valuation, the 12-month target price was raised slightly from HK$290 to HK$292. The target price uses a discounted 2030E P/E methodology, rolling the valuation year forward from 2029E to 2030E to reflect long-term growth; Goldman Sachs applies a target P/E of 14.6x to 2030E EPS and discounts it back to 2027E using an 11% cost of equity. The cost-of-equity assumptions include a beta of 1.2, a risk-free rate of 3.5% and a market risk premium of 6.5%, while the target P/E is derived from the relationship between peer-company P/E multiples and next-year YoY net profit growth. Despite the significant earnings forecast upgrades and improving near-term operating trends, Goldman Sachs maintains its Neutral rating.

Analysis framework

Goldman Sachs first compares 2Q26 net profit and gross margin with company guidance, the previous quarter and the same period last year to assess how price increases have translated into profits. It then analyzes the pace of supply additions through capacity ramp-up, production processes and yields, material constraints and equipment lead times, while comparing supply and demand growth during 2025—2030. The report subsequently combines CRU pricing and China Mobile's procurement price cap to assess 2H26 pricing, analyzes the impact of the AI data center product mix, subsidiary orders and PMF expansion on revenue and gross margin, and finally revises earnings forecasts accordingly and determines the target multiple and target price based on the relationship between peer-company growth and P/E multiples.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Analysis of optical fiber supply-demand growth and new capacity ramp-up

  The report compares a 4% demand CAGR with 6% supply growth during 2025—2030, while considering constraints on new capacity additions from production processes, yields, materials and equipment deliveries, to assess near-term price resilience and the risk of oversupply after 2028.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposition of the impact of prices, project count and product mix on revenue and gross margin

  The report decomposes the improvement in results into optical fiber price increases, higher prices reflected in new projects and a higher share of high-ASP AI data center products, and uses these factors to adjust revenue and gross margin forecasts.

• Valuation MethodPE/PEG valuation

  Discounted 2030E P/E valuation

  Goldman Sachs applies a target P/E of 14.6x to 2030E EPS and then discounts it back to 2027E using an 11% cost of equity; the target multiple references the relationship between peer-company P/E multiples and next-year net profit growth.

• Quantitative/Factor/Portfolio TheoryCAPM Capital Asset Pricing Model

  Cost-of-equity parameter assumptions

  The report derives an 11% cost of equity from a beta of 1.2, a risk-free rate of 3.5% and a market risk premium of 6.5%, and uses it to discount the forward valuation to the target-price base period.

Asset mapping & comparison

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

• YOFC (06869.HK)

  High optical fiber prices, price increases for new projects and AI data center product upgrades are expected to support sequential revenue and profit growth in 2H26.

  Strengths

  2Q26 gross margin reached 60.5%; the company has a product roadmap for expansion into AI data centers, PMF and CPO/NPO opportunities; its subsidiary has secured a long-term order.

  Weaknesses

  Supply is expected to grow 6% during 2025—2030, faster than demand growth of 4%, and Goldman Sachs expects supply to exceed demand by 2% from 2028.

  Comparison

  The 14.6x target P/E is determined by the relationship between peer-company P/E multiples and next-year YoY net profit growth.

  Risks

  Optical fiber prices, AI data center capital expenditure, price competition and HCF commercialization progress could be above or below expectations.

• EverProx (300548.SZ)

  As a YOFC subsidiary, its data center business and long-term agreement support the parent company's AI product mix upgrade.

  Strengths

  It has announced a four-year agreement worth no less than Rmb4.5bn for scale-across solutions.

  Risks

  Weaker-than-expected AI capital expenditure by data center customers could affect related demand.

Key data

• 2Q26 Net ProfitRmb2.4bnUp 606% QoQ and within the Rmb1.9bn—Rmb2.5bn guidance range.
• 2Q26 Gross Margin60.5%Above Goldman Sachs' expectation; 1Q26 and 2Q25 were 41.5% and 28.7%, respectively.
• EverProx Long-Term AgreementNo less than Rmb4.5bnThe agreement has a four-year term and provides scale-across solutions to a customer.
• 2025—2030E Optical Fiber Demand CAGR4%Below the expected supply growth over the same period.
• 2025—2030E Optical Fiber Supply Growth6%Goldman Sachs expects supply to exceed demand by 2% in 2028E.
• China G652.D Optical Fiber PriceRmb85.7/fkmThe comparison figures provided in the report are Rmb83.4/fkm and Rmb81.9/fkm, and it concludes that pricing remained strong in 3Q26.
• China Mobile Optical Fiber Procurement Maximum Price CapRmb80/fkmRaised from Rmb71/fkm when 2026—2027 procurement restarted in August 2026.
• 2026—2028E Earnings Forecast Revisions+44% / +36% / +12%Mainly reflecting higher forecasts for optical fiber prices, AI product mix, revenue and gross margin.
• 12-Month Target PriceHK$292Previously HK$290.
• 2030E Target P/E14.6xBased on the relationship between peer-company P/E multiples and next-year YoY net profit growth.
• Cost of Equity11%Assumes a beta of 1.2, a risk-free rate of 3.5% and a market risk premium of 6.5%.

Impact & implications

The report believes that optical fiber price increases have flowed through to YOFC's results via higher ASPs and gross margins, while more new projects and high-ASP AI data center products are expected to drive continued sequential growth in 2H26. Earnings forecasts were therefore raised significantly, but the target price increased only from HK$290 to HK$292 and the rating remains Neutral, reflecting that near-term improvements in pricing and product mix are still accompanied by uncertainties such as potential oversupply after 2028, AI capital expenditure and commercialization progress.

Risks

• Optical fiber prices may be higher or lower than expected.
• AI capital expenditure by data center customers may be stronger or weaker than expected.
• Price competition may intensify or ease.
• HCF commercialization progress may be faster or slower than expected.

What to watch

• Monitor whether new optical fiber projects in 2H26 fully reflect higher pricing and drive sequential earnings growth.
• Monitor the ramp-up pace of new optical fiber capacity and whether the forecast that supply will exceed demand in 2028E materializes.
• Monitor subsequent changes in G652.D, G657.A1 and G657.A2 prices and China Mobile's procurement pricing.
• Monitor AI data center customer capital expenditure, execution of EverProx's long-term agreement and the share of high-ASP products.
• Monitor the commercialization progress of PMF-, CPO/NPO- and HCF-related products.