3 September 2025 | 2:34PM HKT USI (601231.SS): Asia Leaders Conference 2025: AI accelerator card, AI glasses support 2026; HVDC/optical transceiver opportunity Xuan Zhang +852-2978-1478 | xuan.zhang@gs.com Goldman Sachs (Asia) L.L.C. 3ab8f2aafeb711dfb52c00215ad26546 We hosted USI's (601231.SS, Not Covered) management on Sep 3 at our Asia Leader Conference 2025. Key discussions were around USI's AI accelerator growth, product expansion along the AI server supply chain and the expanding applications of SiP. O ...

Investment Rating - The investment rating for Eoptolink is "Buy" with an updated 12-month target price (TP) of Rmb195, increased from Rmb177 [1][10][17]. Core Views - Eoptolink is positioned to benefit from the ramp-up of 400G/800G optical transceivers, driven by key customers' deployments in AI infrastructure expected in 2025 [17]. - The company's strong second-quarter performance, with a net profit of Rmb2.38 billion, represents a 340% year-over-year increase and a 51% quarter-over-quarter increase, exceeding expectations [1][2]. - Eoptolink's valuation is currently at a discount of approximately 20% compared to its larger peer Innolight, which is expected to converge as both companies share similar net profit growth outlooks [2][8]. Summary by Sections Financial Performance - Eoptolink's 2Q net profit was Rmb2.38 billion, significantly above the guidance range of Rmb2.13 billion to Rmb2.63 billion, driven by strong 800G shipments and margin expansion [1]. - Revenue estimates for 2025-2027 have been revised upwards by 6% to 14%, and net profit estimates have been increased by 9% to 20% following the better-than-expected 2Q results [10][11]. Market Position - Eoptolink is a key player in the optical transceiver market in China, with products that include up to 1.6T optical transceivers [17]. - The stock has underperformed relative to peers recently, but the strong profit beat is expected to act as a catalyst for share price recovery [3][2]. Valuation Metrics - The current 12-month forward P/E for Eoptolink is seen as attractive in a historical context, with expectations for further convergence in valuation with Innolight [8][10]. - The updated target price of Rmb195 is based on a 17x multiple of the 2026 estimated earnings [10][17].

Investment Rating - The report assigns a "Buy" rating for Innolight with a 12-month price target of Rmb115, indicating an upside potential of 25.2% from the current price of Rmb91.87 [10][14]. Core Insights - Innolight is positioned as a leading supplier of optical transceivers in the datacom market, particularly benefiting from the growth in AI and data center expansions [10][11]. - The demand for 800G transceivers is expected to remain strong, driven by cloud service providers transitioning from 400G to 800G for AI inferencing applications [2][10]. - The company anticipates easing supply constraints by the third quarter of 2025 due to new capacity from laser suppliers, which should support shipment growth [7][10]. - Profitability is projected to improve due to a favorable product mix, particularly with an increase in silicon photonics modules, which have higher gross margins compared to traditional transceivers [8][10]. Summary by Sections Demand Outlook - The demand outlook for 2025 remains unchanged, with solid orders from customers. The transition to 800G is expected to ramp up in the second half of 2025, particularly for AI applications [2][10]. - The migration from 400G to 800G in traditional cloud datacenters is anticipated to gain momentum into 2026, although it currently accounts for less than 20% of overall 800G demand in 2025 [2][10]. Supply Constraints - Innolight's revenue growth has been flat over the past three quarters due to upstream component constraints, particularly with EML laser supply. Management expects improvements in supply conditions by 3Q25 [7][10]. Profitability and Margins - The company has reaffirmed its trend of profitability improvement, driven by a shift in product mix towards silicon photonics transceivers and enhanced manufacturing efficiency [8][10]. - The gross margin is expected to increase from 33.8% in 2024 to 38.3% in 2025, with net margins projected to rise from 21.7% in 2024 to 24.3% in 2025 [9][10]. Future Projections - The ramp for 1.6T transceivers is set for 3Q25, but the overall volume is expected to remain small compared to 800G. The mainstream adoption of 1.6T is anticipated in 2027 [3][10]. - The financial outlook shows significant revenue growth, with projections of Rmb29.3 billion in 2025 and Rmb33.6 billion in 2026 [9][10].