Core Viewpoint - The company reported a strong financial performance for 9M25, with revenue of 6.08 billion yuan, a year-on-year increase of 26%, and a net profit of 820 million yuan, up 25% year-on-year, driven by the mass production of 224G high-speed communication cables and a rapid increase in demand for new energy charging guns [1] Financial Performance - For Q3 25, the company achieved revenue of 2.14 billion yuan, a year-on-year increase of 24% but a quarter-on-quarter decrease of 2%, with net profit at 264 million yuan, up 12% year-on-year but down 14% quarter-on-quarter due to a transition phase in server shipments from GB200 to GB300 [1] - The overall gross margin for 9M25 was stable at 32.08%, a slight decrease of 0.77 percentage points year-on-year, while Q3 25 gross margin was 31.38%, down 0.90 percentage points year-on-year [3] Business Growth Drivers - The company is focusing on the strategic direction of "electronic communication + new energy power," with a robust product lineup in high-speed communication cables, including a full range of 1.6T/800G/224G cables and ongoing research for the next generation 448G cables [1] - The revenue from high-speed communication cables in 1H25 reached 466 million yuan, representing a significant year-on-year growth of 397.80% [1] Equipment and Capacity Expansion - As of September 25, 2025, the company had five imported foaming core wire extruders in normal production, with expectations to increase this number to over 20 by the end of the year, which is anticipated to support a new round of business growth [2] Market Outlook - NVIDIA's positive guidance for GPU shipments in 2026 is expected to boost demand for cabinet copper cables, with projected copper core line market space of approximately 3.2 billion yuan in 2025 and 6.7 billion yuan in 2026, reflecting a 106% year-on-year increase [4] - The company’s downstream clients include leading firms in the copper connection industry, which positions it to benefit from external demand spillover [4] Profit Forecast and Valuation - The company is expected to benefit from the growing demand for AI short-distance interconnects, with projected net profits of 1.224 billion yuan, 2.178 billion yuan, and 2.614 billion yuan for 2025-2027 [5] - The target price for the company is set at 43.21 yuan per share, based on a 25x PE ratio for 2026, reflecting an increase from the previous target of 37.88 yuan per share [5]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of 43.21 RMB per share [6][5]. Core Insights - The company reported a revenue of 6.08 billion RMB for the first nine months of 2025, representing a year-on-year increase of 26%, and a net profit attributable to shareholders of 820 million RMB, up 25% year-on-year. The growth is attributed to the mass production of 224G high-speed communication cables and the rapid increase in demand for new energy charging guns [1][2]. - The company is expected to benefit from the ongoing construction of super nodes both domestically and internationally, with the potential for accelerated performance release post-2026 as production capacity increases [1][5]. Revenue and Profitability - In Q3 2025, the company achieved a revenue of 2.14 billion RMB, a 24% increase year-on-year but a 2% decrease quarter-on-quarter. The net profit for the same quarter was 264 million RMB, reflecting a 12% year-on-year increase but a 14% decrease quarter-on-quarter due to transitional phases in server shipments from NVIDIA [1][3]. - The gross margin for the first nine months of 2025 was 32.08%, slightly down by 0.77 percentage points year-on-year. The gross margin for Q3 2025 was 31.38%, down 0.90 percentage points year-on-year, influenced by a slowdown in demand in the electronic business [3]. Product and Market Development - The company has expanded its product range in high-speed communication cables, covering the full series from 1.6T to 224G, and is advancing research on the next generation of 448G cables. In the first half of 2025, revenue from high-speed communication cables reached 466 million RMB, a staggering 397.80% increase year-on-year [2]. - NVIDIA's positive guidance for GPU shipments in 2026 is expected to further boost demand for high-speed copper interconnects, with projected market space for the company reaching approximately 3.2 billion RMB in 2025 and 6.7 billion RMB in 2026 [4]. Financial Forecast and Valuation - The company is projected to see revenue and profit growth driven by the increasing demand for AI short-distance interconnects. The net profit forecasts for 2025, 2026, and 2027 are 1.22 billion RMB, 2.18 billion RMB, and 2.61 billion RMB, respectively [5][10]. - The report suggests a PE ratio of 25x for 2026, leading to a target price of 43.21 RMB per share, reflecting a shift to a 2026 valuation framework [5][10].

Investment Rating - The report initiates coverage on Huafeng Technology with an "Accumulate" rating and a target price of 59.86 RMB per share, based on a 75x PE valuation for 2026 [6][5]. Core Views - Huafeng Technology is positioned as a leader in high-speed connectors in China, benefiting from the increasing demand for short-distance interconnects driven by AI and domestic computing power expansion. The company is gradually releasing production capacity for high-speed line modules developed for major clients, which is expected to lead to sustained performance growth [1][15]. - The report highlights the growth potential in the communications sector, driven by the demand for high-speed interconnects in AI clusters, with a projected market size of 24.1 billion RMB by 2029, growing at a CAGR of 45% from 2025 to 2029 [2][16]. - In the defense sector, the company is expected to benefit from the "14th Five-Year Plan" military budget increase, with a projected 7.2% year-on-year growth in military spending in 2025, enhancing the outlook for defense orders [3][17]. - The industrial segment is anticipated to see stable growth due to the rising penetration of new energy vehicles and the trend towards 800V high-voltage systems, with the high-voltage connector market projected to reach 33.7 billion RMB by 2026, growing at a CAGR of 42% from 2022 to 2026 [3][18]. Summary by Sections Company Overview - Established in 1958, Huafeng Technology is a leading supplier of optical connectors and interconnection solutions in China, focusing on high-speed connectors and system interconnection solutions across communications, defense, and industrial sectors. The company has achieved significant milestones in developing high-speed backplane connectors, breaking the monopoly of foreign leaders in the domestic market [15][25]. Communications Sector - The company is deeply collaborating with major clients to meet the growing demand for high-speed interconnects in AI clusters. The increasing GPU computing power and bandwidth requirements are driving the need for higher signal transmission rates. The domestic high-speed backplane connector market is projected to reach 24.1 billion RMB by 2029, with a CAGR of 45% from 2025 to 2029 [2][16]. Defense Sector - The defense segment focuses on defense connectors and related system interconnection products. With the military budget expected to reach 1.78 trillion RMB in 2025, a 7.2% increase year-on-year, the company is well-positioned to capture growth in defense orders [3][17]. Industrial Sector - The industrial connectors primarily serve the new energy vehicle and rail transportation sectors. The market for high-voltage connectors in new energy vehicles is projected to reach 33.7 billion RMB by 2026, with a CAGR of 42% from 2022 to 2026. The company is also expanding its applications in drone and eVTOL systems [3][18].