Core Viewpoint - The company maintains profit forecasts, raises target price, and retains a buy rating, with strong performance in the first half of the year leading to a turnaround in profitability and revenue growth [1][2]. Financial Performance - The company reported a revenue of 214 million yuan for the first half of 2025, a year-on-year increase of 68.08%, and a net profit attributable to shareholders of 8.97 million yuan, marking a return to profitability [2]. - In Q2 alone, the company achieved a revenue of 120 million yuan, a year-on-year growth of 59.98% and a quarter-on-quarter increase of approximately 30%, with a net profit of 16.47 million yuan, up 171.53% year-on-year [2]. Technological Innovation - The company has made significant breakthroughs in high-power products and VCSEL technology, with a single-tube chip achieving a continuous power of 132W, surpassing the previous maximum of 100W [3]. - The efficiency of VCSEL chips has improved to 74%, with applications in consumer electronics, optical communications, and automotive laser radar [3]. - The company has developed capabilities in three types of optical communication chips: EML, VCSEL, and CW Laser, with 100G EML already in mass production and 200G EML samples being sent out [3]. Catalysts - The acquisition process is progressing smoothly, and the company has received orders for CW products [4].

Investment Rating - The report gives a "Strong Buy" rating for the company [3]. Core Views - The company is a leading supplier of optical chips, transitioning from "passive + active" to optoelectronic integration, focusing on core optical communication technologies [12]. - The acquisition of Fokexima, a domestic leader in MT chip production, is expected to enhance the company's competitive edge in high-density optical transmission devices [7][24]. - The company is benefiting from the explosive demand for computing power, with significant growth in revenue driven by AWG and MPO businesses [7][20]. Financial Data and Valuation - The projected total revenue for 2023 is 755 million yuan, with a year-on-year decline of 16%, followed by a recovery in 2024 with a forecasted revenue of 1.075 billion yuan, representing a 42% increase [2]. - The net profit for 2025 is expected to reach 499 million yuan, with a year-on-year growth of 669% [2]. - The company's PE ratio is projected to decrease from 556.1 in 2024 to 26.8 by 2027, indicating improving valuation metrics as earnings grow [2]. Business Analysis - The company has a strong focus on optical chip and device business, with significant contributions from AWG and MPO segments driving high growth [7][20]. - The CW laser technology is expected to see breakthroughs, which could further enhance revenue growth [7]. - The company has established a solid foundation with a stable shareholding structure and a deep talent pool, supported by long-term collaboration with the Chinese Academy of Sciences [35][38]. Industry Analysis - The demand for AWG products is increasing due to the growth of optical modules driven by data center construction [7]. - The MPO and MT-FA components are critical in high-density optical fiber connections, with demand closely linked to GPU and optical module usage [7]. - The market for optical modules is projected to grow significantly, with the company positioned to benefit from this trend [7].

Core Viewpoint - The global AI infrastructure boom is creating a significant supply-demand imbalance in the optical communication industry, leading to unprecedented profit opportunities for the entire supply chain, particularly benefiting upstream chip manufacturers [3][4]. Group 1: Industry Trends - The optical communication industry is experiencing a structural shortage driven by AI, which is expected to sustain its growth and profitability beyond market expectations [3]. - The demand from global hyperscale AI and cloud service providers is expected to support the continuous growth of Chinese optical transceiver manufacturers [4]. Group 2: Company Performance - Lumentum (LITE) reported impressive results with Q4 FY25 revenue of $480.7 million, a year-on-year increase of 55.9%, and a turnaround from a net loss of $252.5 million to a profit of $213.3 million [5]. - LITE's forward guidance for Q1 FY26 estimates revenue between $510 million and $540 million, representing a quarter-on-quarter growth of 6%-12% and a year-on-year growth of 51%-60% [5]. - Coherent (COHR) showed stable growth, with Q4 FY25 revenue increasing by 16.4% year-on-year, driven by strong performance in the data center segment [7]. Group 3: Chip Supply and Demand - The EML chip supply bottleneck is highlighting opportunities in the industry, with LITE achieving record EML chip shipments and nearly doubling revenue year-on-year [6]. - LITE is transitioning from 3-inch wafers to 4-inch wafers to alleviate chip shortages, with plans to upgrade to 6-inch wafers in the future [6]. - The year 2026 is anticipated to be a breakthrough year for the shipment of 100G and 200G laser chips [7]. Group 4: Data Center Business - The data center and communication business contributed 62% of total revenue, growing 39% year-on-year to $942 million [8]. - The company began shipping 1.6T transceivers in Q2 and expects significant revenue contributions from these products in FY26 [8].

Core Insights - The strong performance of Lumentum (LITE) and Coherent (COHR) in Q2 indicates a significant supply-demand imbalance in the optical communication industry driven by the global AI infrastructure boom [1] - Nomura Securities suggests that the current AI-driven optical communication industry cycle has greater sustainability and growth potential than previously expected, creating unprecedented profit opportunities across the supply chain [1] Company Performance - Lumentum reported Q4 FY25 revenue of $480.7 million, a year-over-year increase of 55.9%, with GAAP net profit turning from a loss of $252.5 million in the same period last year to a profit of $213.3 million [2] - Lumentum's forward guidance for Q1 FY26 estimates revenue between $510 million and $540 million, representing a quarter-over-quarter growth of 6%-12% and a year-over-year growth of 51%-60% [2] - Coherent's Q4 FY25 revenue grew by 16.4% year-over-year, with non-GAAP earnings increasing by 73.6% to $192 million, driven by strong performance in the data center segment [2] Market Dynamics - The EML chip supply bottleneck is creating significant opportunities for the optical communication industry, with Lumentum transitioning from 3-inch wafers to 4-inch wafers to alleviate chip shortages [3] - The data center and communication segments contributed 62% of total revenue, which grew by 39% year-over-year to $942 million [4] - The company began shipping 1.6T transceivers in Q2 and expects meaningful revenue contributions from these products in FY26 [4]

Investment Rating - The investment rating for the company is "Buy" and is maintained [1] Core Views - The optical module market is rapidly expanding, driven by the demand for CW silicon photonic light sources and EML chips due to the growth of AI technologies and data centers [4][5] - The company is expected to see significant revenue growth, with projected revenues of 4.54 billion, 6.47 billion, and 8.88 billion yuan for the years 2025, 2026, and 2027 respectively [6][10] - The company has successfully delivered CW 70mW laser products and is advancing in the development of high-speed EML chips, positioning itself well in the market [5][6] Company Overview - The latest closing price of the company's stock is 166.50 yuan, with a total market capitalization of 143 billion yuan [3] - The company has a total share capital of 0.86 billion shares, with 0.60 billion shares in circulation [3] - The company has a low debt-to-asset ratio of 3.5% and a very high price-to-earnings ratio of -2,378.57 [3] Financial Projections - The company is projected to achieve a net profit attributable to shareholders of 0.92 billion, 1.58 billion, and 2.66 billion yuan for the years 2025, 2026, and 2027 respectively [6][10] - The expected growth rates for revenue are 74.63%, 80.05%, 42.47%, and 37.27% for the years 2024, 2025, 2026, and 2027 respectively [10][11] - The company's gross margin is expected to improve significantly, reaching 57.7% by 2027 [11]

Investment Rating - The report maintains an "Outperform" rating for the communication industry, indicating expected growth exceeding the benchmark index by over 10% [1]. Core Insights - The North American optical communication companies such as Coherent, Lumentum, AAOI, Fabrinet, and Macom have shown significant revenue growth, particularly in optical modules and related products, suggesting a strong rebound in the second quarter [2][3][4][5][6][7]. - The demand for optical communication is driven by the growth of AI data centers and telecommunications, with companies like Coherent and Lumentum reporting substantial increases in revenue due to these sectors [3][4][5][6]. - The ongoing geopolitical tensions, such as the India-Pakistan conflict, have heightened confidence in defense equipment and military communication capabilities, which are expected to see increased demand [8]. Summary by Sections Industry Dynamics - Coherent reported Q3 2025 revenue of $1.5 billion, a 24% year-on-year increase, with 60% of this from the communication market, which grew by 46% [3][16]. - Lumentum's Q3 2025 revenue reached $425.2 million, up 16% year-on-year, driven by hyperscale cloud growth [4][17]. - Fabrinet's Q3 2025 revenue was $872 million, a 19.2% increase, with optical communication revenue at $657 million, up 11.1% [5][18]. - AAOI's Q1 2025 revenue surged to $99.9 million, a 145% increase, largely due to strong CATV market demand [6][19]. - Macom's Q2 2025 revenue was $236 million, a 30% increase, with data center market revenue up 67.3% [7][20]. Investment Recommendations - The report suggests focusing on companies in the optical communication sector, including Zhongji Xuchuang, Xinyi Technology, and Shijia Photon [9][22]. - It also highlights companies in copper connections and military communication sectors as potential investment opportunities [22]. Market Overview - The overall market performance from May 6 to May 9, 2025, showed mixed results, with the Shenwan Communication Index up by 4.96% [22]. - The optical module sector led the gains with a 15.3% increase, followed by controllers and liquid cooling technologies [22][23]. Notable Trends - The report emphasizes the resilience of the optical communication market, driven by the increasing demand for AI-related applications and private cloud deployments [20][21]. - The military communication sector is expected to benefit from advancements in technology and increased defense spending, particularly in the context of recent military conflicts [8][21].

Financial Data and Key Metrics Changes - In Q3, the company reported revenue of $425.2 million and non-GAAP EPS of $0.57, both exceeding the high end of guidance [20] - Non-GAAP gross margin was 35.2%, up 290 basis points sequentially and 650 basis points year on year, attributed to better manufacturing utilization and a favorable product mix [20][21] - Non-GAAP operating margin improved to 10.8%, up 290 basis points sequentially and 1,100 basis points year on year [20][21] Business Line Data and Key Metrics Changes - Cloud and Networking segment revenue reached $365.2 million, increasing 8% sequentially and 16% year on year, driven by strong demand from hyperscale cloud customers [9][22] - Industrial Tech segment revenue was $60 million, down 5% sequentially but up 14% year on year, with ultrafast laser shipments remaining steady [14][15][22] Market Data and Key Metrics Changes - The company anticipates strong sequential growth in the Cloud and Networking segment in Q4, driven by new capacity and increasing demand from network equipment manufacturers [14] - The Industrial Tech segment is expected to see a sequential decline in revenue due to ongoing macroeconomic headwinds and typical seasonal trends [16] Company Strategy and Development Direction - The company aims to achieve quarterly revenue of $750 million, gross margins above 40%, and operating margins greater than 20% [6][18] - Focus on high-growth areas such as cloud and AI, with investments directed towards expanding manufacturing capacity and product offerings [17][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving medium and long-term financial targets despite macroeconomic uncertainties and tariff impacts [18] - The company is building resilience through a diversified manufacturing footprint and flexible supply chain [18] Other Important Information - The company is ramping production of CW lasers and EMLs, with expectations to double EML shipments by the end of calendar 2025 [10][11] - The company is also focusing on co-packaged optics (CPO) as a future growth area, although significant adoption is expected to take several years [118] Q&A Session Summary Question: How is the company tracking towards the $500 million revenue target? - Management confirmed they are still on track for the $500 million target by the end of the year, emphasizing confidence in current performance [30] Question: Update on datacom chip business performance? - The company is outperforming initial expectations in terms of volume and ASP, with a focus on increasing capacity for EMLs and CW lasers [32][34] Question: Clarification on tariff headwinds? - The company quantified a 100 basis point headwind to gross margins due to increased component costs and tariffs, with plans to move more production to Thailand to mitigate this [41][42] Question: Contributions from co-packaged optics? - Management indicated that while CPO is a long-term prospect, they are looking to add components to the CPO ecosystem over the coming years [48][118] Question: Insights on telecom performance and supply issues? - Telecom performance met expectations, with improvements anticipated in supply for pumps and tunables moving into Q4 [97][99] Question: Guidance caution related to macro or tariffs? - Management acknowledged macro uncertainty but expressed confidence in the guidance provided, highlighting strong demand across product lines [100][102]