Yuanjie Technology (688498) Report Interpretation

Overview

This earnings review examines Yuanjie Technology’s 1H26 results. Nomura views the results as in line, with high-end datacom products materially improving the revenue mix and profitability, but retains a Neutral rating and CNY1,655 target price.

Core views

Yuanjie reported 1H26 results after the market close on 28 August. Revenue grew 351.4% year-on-year to CNY925mn, matching the midpoint of its earlier CNY900-950mn profit-alert revenue range. Net profit rose 1,212.2% year-on-year to CNY607mn, above the lower end of the CNY600-650mn profit-alert range. In 2Q26, revenue and net profit grew 372.7% and 1,238.7% year-on-year, respectively, and increased 60.4% and 138.3% quarter-on-quarter. Nomura attributes this acceleration primarily to robust demand for datacom laser chips. The report’s central operating point is the improvement in product mix. 1H26 gross margin rose 31.6 percentage points year-on-year to 80.4%, while 2Q26 gross margin reached 82.1%, up 30.3 percentage points year-on-year and 4.2 percentage points quarter-on-quarter. The company attributed the expansion to a growing contribution from high-margin datacenter products, particularly electro-absorption modulated laser chips and continuous-wave laser chips. Nomura sees the datacom mix, including high-end CW lasers, as the principal reason for the higher profitability. Segment data reinforces this view. Datacom revenue surged 640% year-on-year to CNY774mn in 1H26 and accounted for 84% of total revenue; segment gross margin was 84.0%, up 17.2 percentage points year-on-year. Telecom revenue rose 49% to CNY148mn, or 16% of revenue, and its gross margin improved 32.0 percentage points to 62.2%, also aided by a more favorable mix. Geographically, China revenue was CNY803mn, up 292% year-on-year and representing 87% of total revenue, while overseas revenue reached CNY122mn and represented 13%. Looking ahead, Nomura expects Yuanjie to continue benefiting from secular demand for high-end CW and EML chips in 2H26F. It considers the company well positioned to gain traction amid a supply shortage of high-end laser chips. However, Nomura maintains its Neutral rating and CNY1,655 target price, derived from 65x FY28F EPS of CNY25.47, in line with the WIND China A-share optical-laser sector median P/E. The shares were trading at 60.4x FY28F EPS. Within China’s optical-communications sector, Nomura states a preference for Zhongji InnoLight.

Analysis framework

Nomura reviews reported 1H26 and 2Q26 revenue, profit and margin trends against the company’s prior profit alert, then breaks results down by telecom and datacom segments. It links margin changes to the mix of high-end datacenter laser products and applies a forward P/E multiple to FY28F EPS to derive its target price.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Segment and product-mix analysis

  The report separates telecom and datacom revenue and gross margins to show that the higher-margin datacom mix drove overall profitability.

• Valuation methodsP/E and PEG Valuation

  Forward P/E valuation

  Nomura values Yuanjie at 65x FY28F EPS of CNY25.47, using the WIND China A-share optical-laser sector median P/E as the reference.

Asset mapping & comparison

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

• Yuanjie Technology (688498.SH)

  Primary covered company; benefits from demand for high-end datacom laser chips and a higher-margin product mix.

  Strengths

  Datacom revenue grew 640% year-on-year and 1H26 gross margin reached 80.4%.

  Comparison

  Nomura prefers Zhongji InnoLight in China’s optical-communications sector.

  Risks

  Weaker optical-transceiver demand, slower NPO/CPO penetration, customer supply-chain diversification, geopolitical risks, and slower-than-expected capacity expansion.

• Zhongji InnoLight (300308 CH/3308 HK)

  Preferred company in Nomura’s China optical-communications sector comparison.

  Strengths

  Nomura assigns a Buy rating.

  Comparison

  Preferred over Yuanjie Technology.

Key data

• 1H26 revenueCNY925mnUp 351.4% year-on-year; in line with the midpoint of the CNY900-950mn profit-alert range.
• 1H26 net profitCNY607mnUp 1,212.2% year-on-year; above the lower end of the CNY600-650mn profit-alert range.
• 1H26 gross margin80.4%Up 31.6 percentage points year-on-year.
• 2Q26 gross margin82.1%Up 30.3 percentage points year-on-year and 4.2 percentage points quarter-on-quarter.
• 1H26 datacom revenueCNY774mnUp 640% year-on-year and 84% of total revenue; segment gross margin was 84.0%.
• Valuation basis65x FY28F EPS of CNY25.47In line with the WIND China A-share optical-laser sector median P/E.

Impact & implications

The report argues that stronger datacom demand and a greater share of high-end CW and EML laser chips are lifting Yuanjie’s earnings and margins. It expects this demand backdrop and a high-end laser-chip supply shortage to remain supportive in 2H26F, while its Neutral stance reflects Nomura’s relative sector preference for Zhongji InnoLight.

Risks

• Weaker-than-expected demand in the optical-transceiver market could impede achievement of the target price.
• Slower-than-expected NPO/CPO penetration could reduce demand support.
• Diversification of the top customer’s supply chain could affect the company.
• Geopolitical risks could affect the outlook.
• Potential upside depends on stronger orders from global optical-transceiver manufacturers and faster production-capacity expansion.

What to watch

• Demand for high-end CW and EML laser chips in 2H26F.
• The contribution of high-margin datacenter products to the sales mix and gross margin.
• Orders from global optical-transceiver manufacturers.
• Progress in production-capacity expansion and NPO/CPO penetration.