Core Viewpoint - The market for optical modules is experiencing volatility, with significant declines in leading companies like Zhongji Xuchuang, Xinyi Sheng, and Tianfu Communication, following a cautious report from Morgan Stanley suggesting profit-taking after substantial price increases [3][5][8]. Group 1: Market Performance - Major optical module companies saw sharp declines: Zhongji Xuchuang dropped over 6%, Xinyi Sheng over 7%, and Tianfu Communication over 8% [5]. - Since April, Xinyi Sheng has surged by 460%, Zhongji Xuchuang by 312%, and Tianfu Communication by 269%, indicating a strong upward trend prior to the recent downturn [8]. Group 2: Analyst Opinions - Morgan Stanley's report highlighted that most positive fundamental factors have been reflected in stock prices, suggesting a cautious approach to further investments in the sector [3][8]. - Citigroup maintains a more optimistic view, projecting strong demand for optical modules by 2027, and believes that a valuation re-rating to a P/E ratio above 20 is reasonable [3][14]. Group 3: Company-Specific Insights - Despite a 12% year-on-year profit decline, ZTE's stock has risen 49% year-to-date, showcasing resilience in the face of earnings challenges [7]. - Yike De's stock price has skyrocketed by 319% despite a 22% drop in profits, driven by its high-end optical fiber products [7]. Group 4: Valuation Analysis - Morgan Stanley's analysis indicates that the valuations of Xinyi Sheng and Tianfu Communication have exceeded historical averages, suggesting limited room for further price increases [8]. - The forward P/E ratio for Zhongji Xuchuang has risen from 14 to 24, while Xinyi Sheng's has increased from 8 to 20 since early 2025, reflecting heightened investor expectations [8][14].

Core Viewpoint - The article discusses the recent significant decline in the stock prices of leading optical module companies, influenced by a Morgan Stanley report suggesting profit-taking due to previously reflected positive fundamentals [1][3][4]. Group 1: Market Reaction - Major optical module stocks, including Zhongji Xuchuang, Xinyi Sheng, and Tianfu Communication, experienced sharp declines, with Zhongji Xuchuang dropping over 6%, Xinyi Sheng over 7%, and Tianfu Communication over 8% [3]. - The overall market sentiment weakened, with the ChiNext Index and 5G Index also showing declines following the report [1][3]. Group 2: Analyst Opinions - Morgan Stanley's report indicated that most positive factors for the stocks have been priced in, suggesting a cautious approach to the sector [1][5]. - In contrast, Citigroup maintains a positive outlook for optical module companies, projecting a valuation re-rating with P/E ratios potentially exceeding 20 times due to strong demand anticipated by 2027 [1][10]. Group 3: Company Performance - Despite a decline in profits, companies like ZTE and Yoke Technology have seen significant stock price increases, with ZTE's H-shares up 49% and Yoke Technology's H-shares soaring 319% year-to-date [5]. - Since April, stock price increases for Xinyi Sheng (460%), Zhongji Xuchuang (312%), and Tianfu Communication (269%) have been notable [5]. Group 4: Valuation Insights - Morgan Stanley's analysis shows that Xinyi Sheng and Tianfu Communication's valuations have surpassed historical averages, while Zhongji Xuchuang remains below its historical average [5]. - The forward P/E ratios for Zhongji Xuchuang increased from 14 to 24 times, and for Xinyi Sheng from 8 to 20 times since early 2025 [5]. Group 5: Future Outlook - Despite short-term volatility for some ASICs, the overall narrative for optical module companies remains strong, with expectations for a valuation re-rating and P/E ratios to rise above 20 times [10]. - Goldman Sachs believes that the valuations for Xinyi Sheng and Zhongji Xuchuang remain reasonable despite recent stock price increases, with projected EPS growth for 2025-2027 adjusted upwards by 3% to 38% [10].