Nomura maintains Zhongji Innolight at Buy and raises the target price to CNY1,375

Overview

This is Nomura's company research and rating adjustment report on Zhongji Innolight. Nomura believes that despite the recent share-price pullback, the company's FY26-28F fundamental growth drivers remain unchanged, mainly driven by 800G/1.6T and SiPh upgrades, the commercialization of 2.4T coherent-lite and NPO from 2027, and longer-term expansion of the 3.2T, XPO and CPO markets.

Core views

The core view is that Zhongji Innolight's leadership in high-end optical modules remains solid, and concerns about new entrants and intensifying competition are excessive. The report believes that higher-generation technology routes will raise technical barriers, while the company's R&D, product iteration and supply-chain management capabilities can support its leading share and drive gross-margin expansion through product-mix upgrades.

Analysis framework

The report evaluates the company's growth and valuation from the perspectives of the demand cycle, product roadmap, global shipment forecasts, market share, supply-chain bottlenecks, NPO/CPO technology pathways, use of H-share proceeds and relative valuation multiples. Valuation uses FY27F EPS and P/E multiples for comparable technology/electronic component companies to derive the target price.

Methodology notes

• Valuation methodsP/E multiple valuation

  21x FY27F EPS

  The CNY1,375 target price is based on 21x FY27F EPS of CNY65.47, referencing the median P/E of the WIND China A-share technology/electronic components sector; 20x was used previously.

• Industry forecastsProduct shipment and penetration forecasts

  800G, 1.6T, 2.4T, NPO and CPO shipment forecasts

  The report assesses Zhongji Innolight's FY26-28F revenue, gross margin and market share through shipment and penetration assumptions for optical modules at different speeds, NPO and CPO products.

• Competitive analysisAssessment of technology barriers and market share

  Higher barriers to competition from high-end optical module technology routes

  The report believes that new routes such as 2.4T, 3.2T, NPO and CPO will increase technical difficulty, and that the company can maintain a 30-35% share of the global AIDC optical module market through its R&D and supply-chain capabilities.

Asset mapping & comparison

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

• 300308.SZ

  Core covered security

  Strengths

  Leadership in high-end optical modules, first-mover advantage in SiPh, strong R&D capabilities, effective supply-chain management and H-share proceeds supporting global capacity expansion.

  Weaknesses

  The business is highly dependent on demand for high-end data-center optical modules and the global customer capital-expenditure cycle.

  Comparison

  Currently trading at 13.8x FY27F EPS, versus 21x FY27F EPS used for the target price; Nomura's FY26-28F revenue and earnings forecasts are above WIND consensus estimates.

  Risks

  High-end optical module demand below expectations, intensified 800G/1.6T competition, slower-than-expected upgrades in 3.2T and SiPh products, and price competition affecting exports.

• High-end optical module industry chain

  Related industry direction

  Strengths

  AI data centers are driving demand upgrades for 800G/1.6T, 2.4T, NPO and CPO.

  Weaknesses

  Shortages of upstream InP wafers, EML/CW lasers and other materials and components could affect delivery schedules.

  Comparison

  The report believes NPO is more favorable than CPO for the existing pluggable optical communications industry chain, with commercialization potentially beginning from 2027F.

  Risks

  The pace of upstream capacity expansion, yields, supply-chain bottlenecks and price fluctuations could affect industry profit distribution.

Key data

• RatingBuyRating unchanged.
• Target priceCNY1,375Raised from CNY1,325.
• Current priceCNY902.01Price date: 2026-07-31.
• Implied upside+52.4%Based on the target price and current price.
• Valuation assumption21x FY27F EPS CNY65.47Basis for calculating the target price.
• 800G shipment forecast40.8mn/57.8mn/78.0mn unitsGlobal data-center optical module shipment forecasts for 2026F/2027F/2028F.
• 1.6T shipment forecast25.1mn/68.8mn/126.0mn unitsGlobal data-center optical module shipment forecasts for 2026F/2027F/2028F.
• 2.4T shipment forecast3mn/8mn unitsFor FY27-28F, raised from 2mn/5mn previously.
• NPO shipment forecast8mn/25mn unitsFor FY27-28F; Zhongji Innolight is expected to hold a 40-50% share and contribute 5-6% of total revenue.
• Global AIDC optical module share30-35%Nomura expects the company to maintain this share in FY26-28F.
• H-share listing proceedsApproximately HKD53bnApproximately 35% planned for optical interconnect R&D, 30% for global capacity expansion, and 15% for strategic acquisitions and industry-chain investments.
• Earnings forecast adjustmentsFY26-28F revenue raised 2-5%, earnings raised 4-10%Mainly reflects high-end optical module demand, NPO/CPO expansion and gross-margin improvement.

Impact & implications

The report has a clearly positive impact on Zhongji Innolight: the target price and earnings forecasts are raised while the Buy rating is maintained, reinforcing its positioning as a core beneficiary of high-end optical modules for AI data centers. If the commercialization of 2.4T, NPO and longer-term CPO progresses as expected, the company's revenue growth, gross margin and valuation center could all receive support.

Risks

• Demand for high-end optical modules in the data communications and telecommunications markets is weaker than expected.
• Competition intensifies in the 400G, 800G or 1.6T optical module segments.
• Upgrades to 800G, 1.6T, 3.2T or SiPh products are slower than expected.
• An intensifying price war affects exports to global customers and the company's margins.
• Upstream material and component prices rise or supply tightness exceeds expectations.

What to watch

• Delivery of FY26-28F 800G and 1.6T shipment forecasts.
• Progress of 2.4T coherent-lite and NPO commercialization in 2027F.
• Implementation pace of the long-term 3.2T, XPO and CPO product roadmaps.
• Progress in easing supply constraints for upstream InP wafers, EML and CW lasers.
• Execution of the plan to increase global capacity from approximately 40mn units to 90mn units following the H-share fundraising.
• Changes in the company's market share in global AIDC optical modules and products of 1.6T and above.