Nomura maintains its Buy rating on Innolight Technology and raises the target price to CNY1,325

Overview

This report is Nomura's company research and rating adjustment report on Innolight Technology. Its core view is that although AI infrastructure stocks have recently corrected and the market is concerned about component shortages and duplicate orders from hyperscale AI customers, the fundamental growth drivers for Innolight Technology in FY26-28F remain unchanged. High-end optical communications products remain a key bottleneck in the AI data center market.

Core views

Nomura believes Innolight Technology will benefit from the upgrade of 1.6T and silicon photonics optical modules, expansion of the NPO/CPO market, and future demand for high-end 2.4T/3.2T optical modules. The report expects the company to maintain a 30%~35% share of the global AI data center optical module market and achieve stronger revenue and earnings growth through product upgrades and gross margin expansion.

Analysis framework

The report primarily uses top-down AI data center optical module demand forecasts, product cycle assessments, company market share assumptions, upward earnings forecast revisions and relative valuation to derive the target price.

Methodology notes

• Valuation methodsPrice-to-earnings multiple method

  20x FY27F EPS

  The target price of CNY1,325 is based on 20x 2027F EPS of CNY66.06. The multiple is consistent with the median P/E range for the technology/electronic components sectors in China's A-share market according to WiND, with the CSI300 as the benchmark index.

• Earnings forecastsShipment volume, ASP and gross margin-driven model

  Product upgrade cycle drives upward revisions to revenue and earnings

  The report raises shipment assumptions for 800G, 1.6T, 2.4T and 3.2T optical modules, and believes 1.6T, silicon photonics and NPO/CPO will bring a better product mix and gross margin expansion.

Asset mapping & comparison

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

• Innolight Technology 300308.SZ

  Core covered security

  Strengths

  Strong R&D capabilities in high-end optical modules and effective supply chain management. The company is expected to maintain a 30%~35% share of the global AIDC optical module market and benefit from upgrades in 1.6T, silicon photonics, 2.4T/3.2T and NPO/CPO.

  Weaknesses

  In the short term, the company is affected by supply chain bottlenecks involving InP wafers, MOCVD equipment and 200G EML, and remains sensitive to AI capital expenditure by global cloud providers and demand for high-end optical modules.

  Comparison

  The report's forecasts are materially higher than WiND consensus: FY26-28F revenue is 32%~67% higher and earnings are 14%~38% higher.

  Risks

  High-end optical module demand falling short of expectations, intensifying competition in 800G/1.6T, slower-than-expected upgrades in 3.2T and silicon photonics products, and intensified price competition affecting exports.

Key data

• Target priceCNY1,325.00Raised from the previous CNY1,015.
• Current priceCNY1,098.92Price date: 2026-07-06.
• Implied upside+20.6%Calculated based on the target price and current price.
• 2027F EPSCNY66.06Basis for target price valuation.
• Valuation multiple20x FY27F EPSConsistent with the median P/E range for China's A-share technology/electronic components sectors according to WiND.
• FY27/28F global 800G shipment forecast55mn / 78mn unitsPrevious forecast: 50mn / 71.5mn units.
• FY27/28F global 1.6T shipment forecast71.5mn / 126mn unitsPrevious forecast: 60mn / 110mn units.
• 2.4T shipment assumptionFY27F 2mn units; FY28F 5mn unitsNewly incorporated into the forecast.
• 3.2T shipment assumption2028F 2mn unitsNewly incorporated into the forecast.
• Global AIDC optical module market share assumption30%~35%Based on the company's R&D capabilities and supply chain management.
• FY27-28F revenue forecast upgrade28%~37%Reflecting strong product upgrades and NPO/CPO expansion.
• FY27-28F earnings forecast upgrade30%~38%Reflecting product upgrades and margin expansion.

Impact & implications

If the report's view is realized, Innolight Technology is likely to maintain its leading position during the upgrade cycle for high-end optical modules in AI data centers and achieve a more durable growth trajectory after FY2028F through 2.4T/3.2T and NPO/CPO. Short-term supply bottlenecks may constrain delivery pace, but long-term capacity expansion should help alleviate shortages and strengthen the market share and bargaining power of the industry leader.

Risks

• Demand for high-end optical modules from the data communications and telecommunications markets is weaker than expected.
• Competition intensifies in the 800G/1.6T optical module segment.
• Upgrades in products such as 3.2T and silicon photonics are slower than expected.
• Intensifying price competition may affect the company's exports to global customers and profit margins.
• Duplicate orders from AI infrastructure customers or volatility in demand timing may create order and inventory risks.
• Short-term supply bottlenecks in upstream materials, equipment and components may affect deliveries.

What to watch

• The ramp-up pace of 1.6T optical modules and the penetration rate of silicon photonics products.
• Development, certification and shipment progress for 2.4T/3.2T products.
• The pace of NPO/CPO market expansion and the company's level of participation.
• Progress in alleviating supply bottlenecks for key inputs such as InP wafers, MOCVD equipment and 200G EML.
• The authenticity of global AI data center capital expenditure and orders from hyperscale cloud providers.
• Whether the company's gross margin continues to expand as the product mix upgrades.