Accelerating Deliveries of 1.6T Optical Modules Should Sustain Eoptolink's Strong Growth Momentum Through the Second Half of 2026

Overview

The report reviews Eoptolink's first-half and second-quarter 2026 results, focusing on high-speed optical module shipments, product mix, and profitability. Morgan Stanley believes 1.6T products have entered an accelerated delivery phase and, together with a higher share of high-end products and improved capacity utilization, are likely to sustain the company's strong growth momentum in the second half of 2026.

Core views

The acceleration in earnings growth was first reflected in the simultaneous pickup in revenue and profit. Revenue doubled year over year to RMB20.91 billion in the first half of 2026, comprising RMB8.338 billion in the first quarter and RMB12.572 billion in the second quarter; second-quarter revenue increased 97% year over year and 51% quarter over quarter. First-half net profit rose 91% year over year to RMB7.53 billion, while second-quarter net profit reached RMB4.749 billion, up 100% year over year and 71% quarter over quarter, significantly exceeding the first quarter's RMB2.780 billion. Second-quarter gross profit was RMB6.030 billion, up 102% year over year and 47% quarter over quarter; operating profit was RMB5.561 billion, up 111% year over year and 45% quarter over quarter, showing that revenue expansion has effectively translated into profit growth. The improvement in profitability stems from product mix and economies of scale. Gross margin reached 48.46% in the first half of 2026, an increase of 1 percentage point year over year. The report attributes this change to a product mix shifting toward faster, higher-margin optical modules, while higher capacity utilization, output, and sales volumes further reduced unit costs. In other words, growth is not solely dependent on volume expansion; a rising share of high-end products is also improving earnings quality. In terms of product cadence, 800G optical modules remained the primary shipment product in the first half of 2026, but 1.6T optical modules have become the next-stage growth driver. Second-quarter 1.6T shipment volume increased significantly from the first quarter, and Morgan Stanley expects it to accelerate further from the third through the fourth quarter. It therefore believes the strong revenue and profit growth momentum should continue in the second half of 2026. The key transmission path underlying this view is that faster 1.6T deliveries will drive sales volume and revenue growth for high-end products, while a more favorable product mix will continue to support gross margin. The report also views the technology roadmap as evidence supporting long-term competitiveness. At the OFC exhibition in March 2026, the company showcased its next-generation IMDD 400G/lambda 1.6T DR4 OSFP optical module and 6.4T NPO silicon photonics module. The report believes these products clearly demonstrate the company's leading innovation roadmap in higher-speed and emerging optical interconnect technologies, although the actual timing of large-scale CPO adoption remains an important variable for long-term valuation. The forecast table shows that, under Morgan Stanley ModelWare, the company's revenue is expected to rise from RMB24.8419 billion in 2025 to RMB54.3148 billion in 2026, RMB91.8952 billion in 2027, and approximately RMB112.718 billion in 2028; earnings per share are expected to be RMB6.85, RMB13.31, RMB24.03, and RMB29.09, respectively. Over the same period, EBITDA is expected to increase from RMB11.1073 billion to RMB24.5976 billion, RMB39.8034 billion, and RMB48.2003 billion, while ModelWare net profit is projected at RMB9.5319 billion, RMB18.5589 billion, RMB33.5109 billion, and RMB40.5632 billion, respectively. These forecasts reflect the report's expectations for expanding demand for high-end optical modules, gains in the company's market share, and growth in earnings scale. The valuation uses a residual income model and assigns weights of 30%, 50%, and 20% to bull, base, and bear scenarios, respectively, with the skewed weighting reflecting views on the timing of large-scale CPO adoption. All scenarios use a 10% cost of equity and a 3.5% perpetual growth rate. Assumed compound growth rates for high-end optical module demand from 2026 to 2028 are 46% in the bull case, 43% in the base case, and 43% in the bear case; assumed compound net profit growth rates from 2025 to 2035 are 28%, 25%, and 20%, respectively. Based on this, the report derives a target price of RMB507.14, 23% above the August 24, 2026 closing price of RMB412.00, and assigns an Overweight rating. Scenario changes primarily revolve around demand, market share, costs, and technological substitution. Stronger-than-expected demand for 800G and 1.6T products, faster-than-expected market share gains in data communications, margin improvements from better cost control, or a later-than-expected large-scale CPO breakthrough could all reinforce the upside scenario. Conversely, earlier breakthroughs in CPO or other new technologies, slower-than-expected market share gains due to intense competition or geopolitical pressure, shortages of key components, and weaker-than-expected demand for 800G and 1.6T products could all undermine the foundations for growth and valuation.

Analysis framework

The report first uses first-half and second-quarter financial data to confirm accelerating trends in revenue, profit, and gross margin, then explains the sources of growth through the shipment mix of 800G and 1.6T products, capacity utilization, and the new-product roadmap. It subsequently develops medium-term financial forecasts using Morgan Stanley ModelWare and derives the target price through a residual income model and probability-weighted bull, base, and bear scenarios, before assessing the effects of demand, market share, cost control, component supply, and CPO technology progress on valuation.

Methodology notes

• Valuation MethodRIM Residual Income Model

  Residual Income Model

  This model estimates equity value based on the company's future residual income above the required cost of equity. The report uses a 10% cost of equity and a 3.5% perpetual growth rate as common assumptions across all scenarios to derive the target price.

• Valuation Method

  Probability-Weighted Bull, Base, and Bear Valuation

  The report constructs bull, base, and bear scenarios and assigns them weights of 30%, 50%, and 20%, respectively. Each scenario makes different assumptions regarding growth in high-end optical module demand, long-term net profit growth, and the timing of CPO adoption, after which the valuation results are weighted.

• Company Fundamentals and Financial Framework

  Morgan Stanley ModelWare

  Unless otherwise stated, the report's financial metrics and forecasts are based on Morgan Stanley's internal ModelWare framework, which provides a consistent forecasting basis for revenue, profit, earnings per share, and valuation metrics.

Asset mapping & comparison

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

• Eoptolink Technology Inc Ltd (300502.SZ/300502 CS)

  The subject of the report and a company directly affected by growth in demand for high-speed optical modules, volume expansion of 1.6T products, and upgrades in optical interconnect technology.

  Strengths

  Revenue and profit grew strongly in the first half of 2026, while gross margin improved; 1.6T shipments accelerated, and the company showcased 1.6T DR4 OSFP and 6.4T NPO silicon photonics modules, demonstrating a relatively advanced product roadmap.

  Weaknesses

  Growth forecasts are highly sensitive to demand for high-end optical modules, data communications market share, component supply, and the evolution of new technologies.

  Comparison

  The report does not provide a direct comparison of operating metrics with any single peer company.

  Risks

  Earlier-than-expected breakthroughs in CPO or other new technologies, slower market share gains due to competitive or geopolitical pressure, component shortages, and weaker-than-expected demand for 800G and 1.6T products.

Key data

• First-Half 2026 RevenueRMB20.91 billionDoubled year over year
• First-Half 2026 Net ProfitRMB7.53 billionUp 91% year over year
• First-Half 2026 Gross Margin48.46%Up 1 percentage point year over year
• Second-Quarter 2026 RevenueRMB12.572 billionUp 97% year over year and 51% quarter over quarter
• Second-Quarter 2026 Net ProfitRMB4.749 billionUp 100% year over year and 71% quarter over quarter
• Second-Quarter 2026 Operating ProfitRMB5.561 billionUp 111% year over year and 45% quarter over quarter
• 2025–2028 Earnings per Share ForecastsRMB6.85, RMB13.31, RMB24.03, RMB29.09Corresponding to 2025, 2026, 2027, and 2028, respectively
• Assumed 2026–2028 Compound Growth in High-End Optical Module DemandBull 46%, base 43%, bear 43%Core demand assumptions for the valuation scenarios
• Assumed 2025–2035 Compound Net Profit GrowthBull 28%, base 25%, bear 20%Long-term earnings scenario assumptions
• Scenario Probability WeightsBull 30%, base 50%, bear 20%Reflect expectations regarding the timing of large-scale CPO adoption
• Valuation Parameters10% cost of equity, 3.5% perpetual growth rateThe same parameters are used in all three valuation scenarios
• Target Price and UpsideRMB507.14, 23%Relative to the August 24, 2026 closing price of RMB412.00

Impact & implications

The report believes that accelerating shipments of 1.6T optical modules beginning in the second quarter will combine with 800G products to drive growth in the second half of 2026; a higher share of high-end products, improved capacity utilization, and increased sales volumes should continue to support gross margin. Medium- to long-term value depends on demand for high-end optical modules, the company's share of the data communications market, cost control, and the timing of large-scale adoption of new technologies such as CPO.

Risks

• Earlier-than-expected breakthroughs in CPO or other new technologies could alter the demand trajectory for existing high-speed optical modules.
• Intense competition or geopolitical tensions could cause the company's share of the data communications market to grow more slowly than expected.
• Shortages of key components could constrain product deliveries and revenue growth.
• Weaker-than-expected demand for 800G and 1.6T products could undermine growth and earnings forecasts.

What to watch

• Monitor whether shipments of 1.6T optical modules continue to accelerate in the third and fourth quarters of 2026 as expected in the report.
• Monitor the performance of 800G and 1.6T demand relative to the assumed growth rates for high-end optical module demand from 2026 to 2028.
• Monitor changes in the company's share of the data communications market and the effects of competition and geopolitical factors.
• Monitor whether the share of high-end products, capacity utilization, and cost control continue to drive gross margin improvement.
• Monitor component supply conditions and the timing of large-scale adoption of CPO or other new technologies.