Jiangsu Zhongtian Technology Co., Ltd. (600522.SS) Report Interpretation

Overview

The report reviews ZTT's results for the first half of 2026, focusing on improvements in optical fiber pricing and product mix, submarine cable deliveries and overseas orders, and the effects of these changes on earnings forecasts and valuation. BofA believes the company's structural growth thesis remains intact and therefore reiterates its BUY rating, but lowers the target price based on reduced medium- to long-term offshore wind and optical fiber margin assumptions.

Core views

ZTT's 1H26 net profit increased 52% year over year to RMB2.39bn, within the company's previously announced 50%—60% growth range on July 14; this implies 2Q26 net profit of RMB1.47bn, up 56% year over year. The acceleration in second-quarter earnings was primarily driven by the optical fiber business, while the quarterly net margin also increased by 1.5 percentage points year over year. The report believes the results reflect not only a demand recovery but also the amplified profit impact of price increases and a higher share of high-margin products. Optical communications contributed nearly half of first-half profit. As the average selling price of optical fiber increased from RMB60—70 per fiber-kilometer to RMB100, its gross margin rose from 40% in 1Q26 to 60% in 2Q26. Conventional optical fiber prices are currently stable at RMB90—100 per fiber-kilometer, while specialty optical fiber prices continue to rise. Management expects further improvement in the high-margin product mix during the second half to continue lifting average selling prices and margins; the report states that G657A1, G657A2, and G652D currently account for approximately 20%, 30%, and 40%, respectively. On the supply side, new entrants face high technical barriers, lengthy capacity expansion cycles, and customer certification processes. Demand growth may continue to outpace supply over the next 1—2 years, leading the report to conclude that the upward trend in optical fiber prices has not yet ended. The company plans to add 800—1,000 tonnes to its existing 3,200 tonnes of optical fiber preform capacity. It is also negotiating with North American cloud service provider customers and expects to secure orders within the year; MPO capabilities and expansion among overseas cloud service providers are viewed as new growth and valuation drivers. The marine business is another major earnings driver. Its gross margin increased by nearly 10 percentage points year over year, driven by increased deliveries of 500kV submarine cables. Management expects FY26 marine business revenue to grow by 50%, with the gross margin remaining above 30%, as projects in Germany and Poland are delivered in the second half of 2026. The marine business still has a substantial order backlog of RMB11.3bn, and the company also expects major orders worth more than RMB1bn in Europe and Southeast Asia. The report believes submarine cable entry barriers and strong order visibility are supportive of margins. Meanwhile, growth in the global offshore wind market from a low base and increased domestic power-grid investment support demand for submarine and land cables, respectively. Based on higher optical fiber and marine business margins, BofA further raised its 2026 net profit forecast by approximately 4%; its 2026 margin assumptions for optical communications and submarine cables were increased to 48% and 32%, respectively, from 47% and 30% previously. However, the report also cut its 2027 and 2028 earnings forecasts by 4% and 11%, respectively, to reflect lower global offshore wind assumptions, and reduced its subsequent optical fiber margin assumption from 54% to 50%. The revised forecasts show adjusted net profit of RMB8.780bn, RMB13.099bn, and RMB14.865bn for 2026—2028, respectively, with EPS of RMB2.57, RMB3.84, and RMB4.36. Revenue forecasts for the same period are RMB69.250bn, RMB83.924bn, and RMB94.667bn, respectively. The report therefore presents a combination of near-term earnings upgrades and more cautious medium- to long-term assumptions. Regarding valuation, the target price is based on a DCF methodology using cash flow forecasts for 2026—2035, a 9% WACC, a 3% terminal growth rate, and a company beta of 0.98. Due to reduced medium- to long-term earnings forecasts, the target price was lowered from RMB73.30 to RMB65.00, while the BUY rating was maintained. The report states that the company trades at 10.5x one-year forward P/E, one standard deviation below its historical average; the valuation chart compares the current P/E of approximately 11x with the historical average of 16x. Based on segment earnings, the current share price implies P/E multiples of only approximately 14x and 10x for the optical communications and marine businesses, respectively. BofA believes that continued execution in specialty optical fiber, MPO, overseas cloud service provider capabilities, and submarine cable deliveries could drive a rerating from the company's current level, which is 33% below its mid-cycle valuation. The report also emphasizes two-way sensitivities in its forecasts: stronger offshore wind installations, overseas demand and acceptance of Chinese-manufactured cables, optical fiber or energy storage demand, and a faster decline in copper prices could all create upside. Conversely, weaker-than-expected offshore wind installations or related demand, dependence on state-owned enterprise investment strategies, trade barriers, greater-than-expected increases in copper prices and freight costs, and privacy and national security issues in the telecommunications industry could reduce earnings or the target price.

Analysis framework

The report first uses half-year and second-quarter data to identify the sources of earnings growth, then analyzes optical communications margins through optical fiber pricing, product mix, supply-demand conditions, and capacity expansion plans. It subsequently evaluates marine business growth based on submarine cable deliveries, order backlog, and overseas projects. BofA adjusts its short- and medium-term earnings forecasts accordingly, then determines the target price using DCF and cross-checks the valuation against historical P/E multiples and implied segment P/E multiples.

Methodology notes

• Valuation methodologyDCF

  Discounted cash flow valuation for 2026—2035

  The report discounts the company's forecast cash flows for 2026—2035 to present value and uses a 9% WACC and 3% terminal growth rate to calculate the RMB65 target price; reduced medium- to long-term earnings forecasts directly led to the lower target price.

• Valuation methodologyPE/PEG valuation

  Forward P/E and historical range comparison

  The report compares the 10.5x one-year forward P/E with the historical average and standard deviation range, while the valuation chart also shows the current P/E of approximately 11x at a discount to the historical average of 16x.

• Valuation methodologySOTP valuation

  Deriving implied segment P/E multiples from business profits

  The report separates earnings from the optical communications and marine businesses and notes that the current share price implies P/E multiples of approximately 14x and 10x, respectively, to assess the valuation assigned to each business at the current price.

• Industry analysis frameworkSupply-demand framework

  Analysis of optical fiber demand, supply expansion, and customer certification

  The report believes demand growth may outpace supply over the next 1—2 years, while capacity expansion and customer certification take considerable time for new suppliers. Conventional optical fiber prices are therefore supported, and specialty optical fiber retains further pricing upside.

• Industry analysis frameworkVolume-price decomposition

  Decomposition of pricing, product mix, delivery volume, and margins

  The report separately examines the average selling price of optical fiber and the share of specialty products, as well as growth in submarine cable deliveries and changes in gross margins, to explain the specific sources of revenue and earnings improvement.

Asset mapping & comparison

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

• Jiangsu Zhongtian Technology Co., Ltd. (600522.SS)

  Optical fiber price increases, a higher share of specialty optical fiber, expansion among overseas cloud service providers, and growth in submarine cable deliveries are the main reasons the report sees further room for earnings and valuation improvement.

  Strengths

  A leading position in submarine cables, land cables, and optical cables; high entry barriers and a substantial order backlog in submarine cables, with the optical communications business benefiting from improved pricing and product mix.

  Weaknesses

  Earnings are relatively sensitive to offshore wind installations, state-owned enterprise investment strategies, raw material and transportation costs, and optical fiber pricing and demand.

  Comparison

  The one-year forward P/E is 10.5x, one standard deviation below the historical average; the valuation chart shows a current P/E of approximately 11x, below the historical average of 16x.

  Risks

  Weaker-than-expected offshore wind and optical fiber demand, rising trade barriers, higher copper prices and freight costs, and privacy and national security issues in the telecommunications industry.

Key data

• 1H26 net profitRMB2.39bnUp 52% year over year, within the previously announced earnings growth range of 50%—60%.
• 2Q26 net profitRMB1.47bnUp 56% year over year, primarily driven by the strong optical fiber business.
• Optical communications profit contributionNearly half of 1H26 profitOne of the main sources of earnings in the first half.
• Optical fiber gross margin1Q26 40%; 2Q26 60%Improved significantly as the average selling price increased.
• Average selling price of optical fiberIncreased from RMB60-70/fkm to RMB100/fkmConventional optical fiber prices subsequently stabilized at RMB90-100/fkm, while specialty optical fiber prices continue to rise.
• Optical fiber preform capacityExisting capacity of 3,200 tonnes, with 800—1,000 tonnes of additional capacity plannedCapacity expansion also faces industry technical barriers and customer certification cycles.
• Change in marine business gross marginImproved by nearly 10 percentage points year over yearPrimarily driven by increased deliveries of 500kV submarine cables.
• FY26 marine business guidanceRevenue growth of 50%, with gross margin remaining above 30%Projects in Germany and Poland are expected to be delivered in 2H26.
• Marine business order backlogRMB11.3bnThe company also expects major orders in Europe and Southeast Asia worth more than RMB1bn.
• Earnings forecast revisions2026E raised by approximately 4%; 2027E/2028E cut by 4%/11%The near-term upgrade reflects optical fiber and marine business margins, while the longer-term cuts reflect lower offshore wind and optical fiber margin assumptions.
• 2026E segment marginsOptical communications 48%; submarine cables 32%Previous forecasts were 47% and 30%, respectively.
• 2026—2028E adjusted net profitRMB8.780bn / RMB13.099bn / RMB14.865bnCorresponding EPS is RMB2.57 / RMB3.84 / RMB4.36.
• Key DCF assumptionsWACC 9%; terminal growth rate 3%; beta 0.98The cash flow forecast period is 2026—2035.
• Target price revisionReduced from RMB73.30 to RMB65.00Due to reduced 2027—2028 and long-term earnings assumptions.
• Forward valuation10.5x one-year forward P/EOne standard deviation below the historical average; the chart compares approximately 11x with the historical average of 16x.
• Implied segment valuationOptical communications 14x; marine business 10xCalculated based on the current share price and 2026—2027 segment earnings.

Impact & implications

The report believes that optical fiber price increases, a higher share of high-margin specialty products, and submarine cable project deliveries will continue to improve ZTT's near-term earnings, while expansion among North American cloud service providers and submarine cable orders in Europe and Southeast Asia provide additional growth potential. However, BofA reduced its longer-term offshore wind and optical fiber margin assumptions and therefore lowered the target price; maintaining the BUY rating reflects its view that the current valuation still does not fully capture the structural drivers of the optical communications and marine businesses.

Risks

• Upside risk: Offshore wind installations exceed expectations.
• Upside risk: Overseas demand and market acceptance of Chinese-manufactured cables exceed expectations.
• Upside risk: Prices of copper and other raw materials decline faster than expected.
• Upside risk: Demand for optical fiber and cables and energy storage systems exceeds expectations.
• Downside risk: Offshore wind installations fall below expectations.
• Downside risk: The company is highly dependent on the investment strategies of state-owned enterprises.
• Downside risk: Trade barriers between China and other countries increase.
• Downside risk: Prices of copper and other raw materials or transportation costs rise more than expected.
• Downside risk: Demand for optical fiber and cables and energy storage systems falls below expectations.
• Downside risk: The telecommunications industry faces privacy and national security issues.

What to watch

• Monitor whether conventional optical fiber prices can remain at RMB90—100 per fiber-kilometer and whether specialty optical fiber prices continue to rise.
• Observe the contribution of a higher share of high-margin optical fiber products in 2H26 to average selling prices and margins.
• Monitor progress on the additional 800—1,000 tonnes of optical fiber preform capacity.
• Track the company's negotiations with North American cloud service providers and whether orders are secured within the year.
• Observe the delivery progress of submarine cable projects in Germany and Poland during 2H26.
• Monitor whether major submarine cable orders worth more than RMB1bn in Europe and Southeast Asia materialize.
• Track the FY26 guidance of 50% marine business revenue growth and a gross margin above 30%.
• Monitor changes in global offshore wind installations, copper prices, transportation costs, and trade barriers.