Suzhou TFC Optical Communication Co Ltd-3Q25 Earnings Miss Reflected; Upgrade to EW

Summary of Suzhou TFC Optical Communication Co Ltd. 3Q25 Earnings Call Company Overview - Company: Suzhou TFC Optical Communication Co Ltd. (300394.SZ) - Industry: Greater China Technology Hardware - Market Cap: Rmb117,536 million - Current Share Price: Rmb151.55 (as of November 5, 2025) - Price Target: Rmb142.00 Key Financial Highlights - 3Q25 Earnings Miss: Revenue of Rmb1.463 billion, which is 24% below estimates, up 74% YoY but down 3% QoQ - Net Profit: Rmb566 million - Share Price Correction: From Rmb220 in early September to Rmb152 as of November 5, reflecting fundamental negatives [3][8] Rating and Price Target - Rating Upgrade: Upgraded to Equal-weight (EW) from Underweight - Earnings Estimate Revision: Lowered by 7% for 2025, with minor adjustments of 2-3% for 2026-27 - Long-term Outlook: Despite the earnings miss, the company is expected to deliver positive earnings growth in the next two years [4][8] Investment Thesis Positive Drivers - AI Infrastructure Investment: Anticipated growth in demand for 800G and 1.6T products over the next 2-3 years - New Product Launches: Continuous innovation in optical components expected to drive revenue growth and margin improvement [9][10] Negative Risks - Geopolitical Tensions: Close partnerships with overseas partners may expose the company to tariff risks and supply chain disruptions - Earnings Growth Monitoring: If the company fails to sustain over 30% earnings CAGR in the coming years, there could be downside risks [11][12] Valuation Insights - Valuation Metrics: Forward P/E has declined from 50x to 30-40x, still above historical averages - P/B vs. ROE: Improvement in ROE suggests potential for valuation re-rating, but the stock remains at a premium compared to peers [15][16] Earnings Estimates - Revised Estimates: - 2025E Net Sales: Rmb6,079 million (down 14% from previous estimates) - 2026E Net Sales: Rmb10,194 million - 2027E Net Sales: Rmb14,493 million - Expected YoY growth rates for 2025-2027 are 87%, 68%, and 42% respectively [22][23] Conclusion - Current Positioning: The recent share price correction has largely priced in the earnings miss, leading to an upgrade to EW - Future Outlook: The company is well-positioned for growth, driven by strong demand in the optical communication sector, despite facing geopolitical and competitive challenges [12][35]