Nomura: YOFC’s third-quarter profit surges; earnings forecasts raised but target price cut

Where did third-quarter growth come from, and how did margins change?

YOFC reported on 30 October that revenue for the third quarter of 2026 was 9.3 billion yuan and net profit was 3.2 billion yuan, up 139% and 1742% year on year, respectively. Nomura believes strong AI data-center demand and supply shortages drove a sharp rise in fiber prices, while an improved product mix also supported growth.
Quarter on quarter, third-quarter revenue rose 52%, but gross margin fell from 60.5% in the second quarter to 57.4%, a decline of 3.2 percentage points. Revenue expanded, while gross margin did not maintain its previous-quarter level.

YOFC’s data communications products include high-end fibers such as multicore and hollow-core fiber, as well as optical components such as MPO connectors. Nomura forecasts a compound annual growth rate of 57% for AI network product revenue from 2026 to 2028, including 66% for AI optical fiber and cable.
Nomura forecasts that AI network revenue will rise from 19% of the company’s total revenue in 2025 to 42% in 2028; the shares for 2026 and 2027 are 30% and 38%, respectively. A higher share of high-end products is one reason the bank expects overall gross margin to improve.
In the traditional telecommunications market, Nomura believes limited optical fiber preform capacity has driven a marked rise in spot prices since the fourth quarter of 2025; higher prices in China Mobile’s 2026/27 optical cable tender also reflect a supply shortage. Higher prices are expected to partly offset lower demand volumes and support gross margin.

Citing increased demand for high-end products, Nomura raised its revenue forecasts for 2026–2027 by 2%–6%. Taking into account the rising share of AI network revenue and higher prices, it also raised its gross margin forecasts for 2026–2028 by 11.2–11.5 percentage points, leading it to raise net profit forecasts for the same period by 40%–58%.
For 2026, for example, the bank forecasts revenue of 29.755 billion yuan, 6% above its previous forecast; its gross margin forecast rises from 38.3% to 49.9%, and its net profit forecast from 5.041 billion yuan to 7.987 billion yuan.
Nomura is more optimistic about AI business expansion, with its revenue forecasts for 2026–2028 12%–28% above the Bloomberg market consensus; driven by higher prices and high-end products, its net profit forecasts are 5%–15% above consensus.

Nomura maintained its buy rating but cut its target price from HK$266 to HK$167. The new target uses forecast earnings per share of 14.41 yuan for 2027 and a price-to-earnings ratio of 10 times; the previous valuation multiple was 23.7 times, and the new multiple is in line with the median P/E of Chinese H-share communications technology companies.
As of the report date, YOFC’s share price had fallen 53.5% over the previous six months, while the Hang Seng Index fell 10.2% over the same period. Nomura believes market concerns about oversupply have been reflected in recent share-price weakness.
The price outlook remains subject to supply constraints: Nomura notes that market prices could fall if fiber or preform producers expand capacity faster than expected; weaker-than-expected fiber demand from Chinese telecom operators or expansion of the AI network business would also affect its assessment.