Accelerating 1.6T optical module deliveries should sustain Eoptolink's strong growth momentum in 2H26

Overview

This report reviews Eoptolink's first-half and second-quarter 2026 results and assesses how the ramp-up of 1.6T optical modules will drive subsequent growth. Morgan Stanley believes that simultaneous improvements in revenue, profit, and gross margin, combined with an upgraded high-speed product mix and accelerating 1.6T deliveries, make it highly likely that strong growth momentum will continue into 2H26; the report assigns an Overweight rating and a target price of Rmb507.14.

Core views

Eoptolink achieved significant revenue and earnings growth in 1H26. Revenue doubled year over year to Rmb20.91bn, comprising Rmb8.338bn in the first quarter and Rmb12.572bn in the second quarter. Second-quarter revenue increased 97% year over year and 51% quarter over quarter, indicating further quarterly acceleration. First-half net profit increased 91% year over year to Rmb7.53bn; second-quarter net profit reached Rmb4.749bn, up 100% year over year and 71% quarter over quarter, significantly above the first quarter's Rmb2.780bn. Second-quarter gross profit was Rmb6.030bn, up 102% year over year and 47% quarter over quarter; operating profit was Rmb5.561bn, up 111% year over year and 45% quarter over quarter, showing that revenue expansion translated effectively into operating profit. The improvement in profitability resulted from the combined effects of product mix and capacity efficiency. Gross margin was 48.46% in 1H26, up 1 percentage point year over year. The report attributes this change to a product mix shift toward optical modules with higher transmission speeds and higher gross margins, as well as increases in capacity utilization, production volume, and sales volume. Growth therefore reflects not only increased shipment volumes but also an optimized earnings structure driven by a higher proportion of high-speed products. The product rollout cadence is the core basis for the report's view that growth can continue in the second half. Although 800G optical modules remained the primary shipment product in 1H26, second-quarter shipment volumes of 1.6T optical modules increased significantly from the first quarter, and Morgan Stanley expects further acceleration from the third to the fourth quarter. The report therefore believes that accelerating 1.6T deliveries can sustain the growth momentum from the first half. Regarding the technology roadmap, Eoptolink showcased its next-generation IMDD 400G/lambda 1.6T DR4 OSFP optical module and 6.4T NPO silicon photonics module at OFC in March 2026, which the report views as a signal that the company has a leading innovation roadmap. Morgan Stanley's model forecasts that the company's net revenue will increase from Rmb24,841.9mn in 2025 to Rmb54,314.8mn in 2026, Rmb91,895.2mn in 2027, and Rmb112,718mn in 2028; EBITDA is projected at Rmb11,107.3mn, Rmb24,597.6mn, Rmb39,803.4mn, and Rmb48,200.3mn, respectively, over the same period. ModelWare net profit is expected to rise from Rmb9,531.9mn in 2025 to Rmb18,558.9mn in 2026, Rmb33,510.9mn in 2027, and Rmb40,563.2mn in 2028; earnings per share are projected at Rmb6.85, Rmb13.31, Rmb24.03, and Rmb29.09, respectively, with the previous 2027 forecast at Rmb24.53. The target price is based on a residual income model and probability-weighted at 30% for the bull case, 50% for the base case, and 20% for the bear case; the skewed weights reflect the expected timetable for large-scale CPO adoption. All scenarios use a 10% cost of equity and a 3.5% perpetual growth rate. The assumed 2026–2028 CAGRs for high-end optical module demand are 46% in the bull case, 43% in the base case, and 43% in the bear case; the assumed 2025–2035 net profit CAGRs are 28%, 25%, and 20%, respectively, with a later CPO breakthrough representing a key assumption in the weaker scenario. Under this framework, the report sets a target price of Rmb507.14, representing 23% upside from the closing price of Rmb412.00 on August 24, 2026, and maintains its Overweight rating. The upside scenarios listed in the report include stronger-than-expected demand for 800G and 1.6T products, faster market-share gains in the data communications market, better-than-expected cost control that drives margin improvement, and earlier breakthroughs in CPO or other new technologies. Conversely, intensified competition or geopolitical tensions could cause market-share gains in data communications to proceed more slowly than expected, component shortages could constrain deliveries, and weaker-than-expected demand for 800G and 1.6T products could impair growth; a later CPO breakthrough would also affect the long-term technology and earnings trajectory.

Analysis framework

The report first breaks down revenue, profit, and sequential changes for 1H26 and the second quarter to determine whether growth is accelerating. It then explains gross-margin and earnings growth through the high-speed product mix, capacity utilization, and the cadence of 1.6T shipments, before evaluating the technology roadmap based on new product showcases. Finally, it incorporates high-end optical module demand, long-term net profit growth, and the timing of CPO deployment into bull, base, and bear scenarios, uses a probability-weighted residual income model to derive the target price, and presents upside and downside scenarios.

Methodology notes

• Valuation MethodRIM Residual Income Model

  Residual income model

  This method measures equity value based on the company's book capital and future residual income exceeding the cost of equity. The report uses this model to estimate Eoptolink's target price under assumptions of a 10% cost of equity and a 3.5% perpetual growth rate.

• Valuation Method

  Probability-weighted valuation of bull, base, and bear scenarios

  The report sets separate assumptions for high-end optical module demand growth, long-term net profit growth, and the timing of CPO deployment, then applies weights of 30% to the bull case, 50% to the base case, and 20% to the bear case to reflect the impact of different operating and technology paths on the target price.

Asset mapping & comparison

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

• Eoptolink Technology Inc Ltd (300502.SZ)

  The report believes that the company benefits from continued 800G shipments, accelerating 1.6T deliveries, an upgraded high-speed product mix, and improved capacity utilization.

  Strengths

  Revenue and profit grew rapidly in 1H26, while gross margin improved; 1.6T shipments accelerated, and the company showcased 1.6T DR4 OSFP and 6.4T NPO silicon photonics products.

  Weaknesses

  The growth trajectory is relatively sensitive to demand for high-speed optical modules, market share in data communications, component supply, and the pace of new technology deployment.

  Comparison

  The report does not provide specific operating-data comparisons with peers; the Overweight rating indicates that risk-adjusted total return over the next 12–18 months is expected to exceed the average for the analyst's industry coverage universe.

  Risks

  Competition or geopolitical tensions slowing market-share gains, component shortages, weaker-than-expected demand for 800G and 1.6T products, and delayed CPO breakthroughs.

Key data

• 1H26 RevenueRmb20.91bnDoubled year over year
• 1H26 Net ProfitRmb7.53bnUp 91% year over year
• 1H26 Gross Margin48.46%Up 1 percentage point year over year
• 2Q26 RevenueRmb12.572bnUp 97% year over year and 51% quarter over quarter
• 2Q26 Net ProfitRmb4.749bnUp 100% year over year and 71% quarter over quarter
• 2Q26 Operating ProfitRmb5.561bnUp 111% year over year and 45% quarter over quarter
• 2026–2028 Revenue ForecastsRmb54,314.8mn / Rmb91,895.2mn / Rmb112,718mnMorgan Stanley ModelWare forecasts
• 2026–2028 Earnings per Share ForecastsRmb13.31 / Rmb24.03 / Rmb29.09The previous 2027 forecast was Rmb24.53
• 2026–2028 CAGR of High-End Optical Module DemandBull case 46% / Base case 43% / Bear case 43%Core demand assumptions for the valuation scenarios
• 2025–2035 Net Profit CAGRBull case 28% / Base case 25% / Bear case 20%Long-term earnings scenario assumptions
• Valuation Scenario WeightsBull case 30% / Base case 50% / Bear case 20%The weights reflect the expected timetable for large-scale CPO adoption
• Cost of Equity and Perpetual Growth Rate10% / 3.5%The same assumptions are used in all valuation scenarios
• Target PriceRmb507.14Represents 23% upside from the Rmb412.00 closing price

Impact & implications

The report believes that Eoptolink's growth drivers are expanding from its core 800G shipments to the ramp-up of 1.6T products, while a higher mix of high-speed products and improved capacity utilization are enabling revenue growth to translate into higher profits. Whether future earnings and valuation expectations are realized will primarily depend on demand for 800G and 1.6T products, market share in data communications, component supply, cost control, and the deployment timing of new technologies such as CPO.

Risks

• Intense competition or geopolitical tensions could cause the company's market share in data communications to increase more slowly than expected.
• Component shortages could constrain production and deliveries.
• Demand for 800G and 1.6T products could be weaker than expected.
• CPO technology breakthroughs or large-scale adoption could occur later than expected.

What to watch

• Monitor whether shipments of 1.6T optical modules continue to accelerate as expected from the third to the fourth quarter of 2026.
• Track changes in 800G and 1.6T demand relative to the report's scenario assumptions.
• Watch the pace of the company's market-share gains in data communications and the impact of competition and geopolitics.
• Monitor whether cost control, capacity utilization, and product-mix changes continue to drive margin improvement.
• Track component supply conditions and the timing of breakthroughs in CPO or other new technologies.