2025-08-27 01:12Summary of Conference Call Notes Industry Overview - Industry: Optical Transceiver - Companies: Innolight and Eoptolink Key Points and Arguments 1. Earnings Estimates Revision: EPS estimates for Innolight and Eoptolink have been raised due to three factors: - Tight capacity benefiting both companies due to scale advantages and leadership in silicon photonics, particularly for Innolight [1] - Removal of near-term tariff overhang improving shipment outlook [1] - Slower ASP decline than previously estimated, now projected at 15% instead of 20% for 2025-27E [1] 2. Shipment Projections: Innolight's shipments are expected to increase by up to 36%, with ASP decline factored in [1] 3. Target Prices: - Innolight's 12-month target price raised to Rmb392 - Eoptolink's target price raised to Rmb398 [1] 4. Supply Dynamics: - Focus on capacity ramp pace at Innolight/Eoptolink, EML supply dynamics, price negotiations for 2026, and suppliers' comments on 2027 demand [2] 5. Long-term Growth Prospects: - More constructive outlook on long-term growth, with rising content supporting better sustainability [3] - Spending on transceivers per dollar spent on GPU is expected to rise from $0.07 to $0.12 as new generations are introduced [3][17] 6. Valuation and Risk-Reward Analysis: - Eoptolink and Innolight shares trade at 19x/23x 2026E P/E and 15x/18x 2027E P/E, which is considered undemanding [4] - Scenario analysis indicates potential share price upside of 101% for Innolight and 111% for Eoptolink in a bull case, with downside risks of 34% and 38% respectively in a bear case [4][40] 7. Competitive Position: - Innolight and Eoptolink are expected to maintain market share despite US-China trade tensions, benefiting from production capacity and product development efficiencies [8][9] 8. Production Capacity: - Significant capacity built in Thailand for both companies, which is advantageous due to tariff exemptions for shipments to the US [10] 9. Revenue Growth: - Innolight's net profit projected to peak at Rmb40 billion in 2029E, while Eoptolink's net profit expected to peak at Rmb36 billion in the same year [25][39] 10. Future Product Upgrades: - Anticipated upgrades to 1.6T and 3.2T products are expected to drive revenue growth and sustainability [16][24] Additional Important Insights - Employee Growth: Innolight leads in employee numbers in non-China production bases, indicating strong production capacity [11] - Quarterly Revenue Growth: Innolight and Eoptolink have shown growth rates on par with or above global peers, suggesting no significant share loss [13] - Long-term Earnings Outlook: Earnings for both companies are expected to peak in 2029E, with a slower ramp for 3.2T products due to potential cannibalization from CPO technology [23][33] This summary encapsulates the critical insights from the conference call, highlighting the positive outlook for Innolight and Eoptolink in the optical transceiver market, driven by supply dynamics, product upgrades, and strategic positioning amidst competitive pressures.