Goldman Sachs·2025-03-25 02:20Investment Rating - The investment rating for Innolight is "Buy" with a 12-month price target (TP) of Rmb170, indicating an upside potential of 65.2% from the current price of Rmb102.88 [17] - The investment rating for TFC Optical is "Neutral" with a 12-month price target (TP) of Rmb108, indicating an upside potential of 21.6% from the current price of Rmb88.84 [21] Core Insights - The report revises the 1.6T volume estimates for Innolight and TFC Optical downward due to a reduction in GS AI server estimates, leading to an 8% cut in Innolight's 2026E net profit and a 10% cut in TFC Optical's 2025E estimates [1][2][8] - Innolight is positioned as a leading supplier in the optical transceiver market, particularly benefiting from the expansion of AI and data centers, with a focus on improving gross profit margins and return on invested capital (ROIC) through a faster product upgrade cycle [14][18] - TFC Optical is recognized as a key component supplier for optical transceiver manufacturers, capturing 75% of the bill of materials (BOM) for optical transceivers, although its valuation reflects a premium due to strong earnings per share (EPS) outlook [18] Summary by Relevant Sections Innolight Estimates - Revenue estimates for Innolight are revised to Rmb36,385 million for 2026E, down from Rmb39,241 million, reflecting a 7% decrease [6] - Net income estimates for Innolight are adjusted to Rmb9,536 million for 2026E, also reflecting an 8% decrease [6] TFC Optical Estimates - Revenue estimates for TFC Optical are revised to Rmb6,195 million for 2026E, down from Rmb6,290 million, indicating a 1.5% decrease [9] - Net income estimates for TFC Optical are adjusted to Rmb2,384 million for 2026E, reflecting a 1.2% decrease [9] Market Demand Projections - The demand for 1.6T transceivers is projected to reach 1.9 million units in 2025, 6.9 million units in 2026, and 13.6 million units in 2027 as customers transition to higher bandwidth solutions [12]