Core Viewpoint - Morgan Stanley believes that the demand potential for 1.6T pluggable optical modules may be underestimated, with the growth pace likely to exceed market expectations, benefiting Zhongji Xuchuang in the coming years [1][2]. Group 1: Market Outlook - The 1.6T pluggable optical module market is expected to see significant growth, driven by the ongoing strong demand for 800G and the clear upgrade path to 1.6T due to increasing network bandwidth needs from AI systems [4]. - Morgan Stanley has raised its revenue forecasts for Zhongji Xuchuang, projecting a 15% increase in 2026 revenue from 61.39 billion to 70.80 billion and a 17% increase in 2027 revenue from 75.77 billion to 88.55 billion [4][6]. Group 2: Profitability Projections - Adjusted net profit forecasts for Zhongji Xuchuang have been increased, with 2026 net profit rising from 16.80 billion to 19.78 billion and 2027 net profit from 20.35 billion to 23.87 billion, reflecting an 18% and 17% increase respectively [5][6]. - The company is expected to achieve a compound annual growth rate of 55% in sales and 66% in profits from 2025 to 2027, with a conservative gross margin estimate of around 40% [6]. Group 3: Competitive Position - Morgan Stanley maintains that the impact of next-generation technology, such as Co-Packaged Optics (CPO), will not be disruptive in the short term, with large-scale application expected only after 2027, allowing pluggable optical modules to remain the mainstream technology [2][8]. - Even after 2027, Zhongji Xuchuang is expected to maintain a competitive edge due to its expertise in optics and component integration, as well as strong relationships with key customers [9]. Group 4: Investment Rating - Morgan Stanley has upgraded its rating for Zhongji Xuchuang to "Overweight," raising the target price from 366 to 430 yuan based on a 20x one-year forward P/E ratio, indicating potential for valuation improvement [7].