Why did profit continue to grow despite a sequential decline in revenue?

  • In the third quarter of 2026, the company reported revenue of 17.5 billion yuan, up 22% year on year but down 2% quarter on quarter. Net profit was 1.61 billion yuan, up 109% year on year and 10% quarter on quarter.
  • Profit grew faster than revenue mainly because of margin improvement: the third-quarter gross margin was 18.9%, up 5.0 percentage points year on year and 1.7 percentage points quarter on quarter; the net margin was 9.2%, up 3.9 percentage points year on year.
  • Nomura believes further price increases for optical fiber and cable products drove revenue growth. Higher optical fiber selling prices and a greater share of high-margin products may together have driven gross margin expansion. The optical communications business contributed approximately 70% of the company’s third-quarter profit.

How might the share of high-margin optical fiber change?

  • In the third quarter, G.657 products accounted for more than 50% of total optical fiber output, while G.652 products accounted for less than 40%. Management expects G.657 to make up approximately 70% of the product mix in 2027–2028; this change affects the contribution of high-margin products to the overall profit margin.
  • The company plans to add 800 to 1000 tonnes of optical fiber preform capacity, expected to come into operation in the fourth quarter of 2026 or the first half of 2027. Recognition of revenue from some G.657 products has been delayed and is expected in the fourth quarter of 2026.

What is the outlook for energy business orders and Nomura’s valuation?

  • The energy business has orders on hand of 36.2 billion yuan, including 12.5 billion yuan from the marine business. The company has secured more than 2 billion yuan in new marine orders, mainly from overseas; management says it has been shortlisted for some offshore wind projects in Europe and Southeast Asia.
  • Nomura maintained its Buy rating and 40 yuan target price. The bank uses a sum-of-the-parts valuation, applying 2027 forecast price-to-earnings multiples of 18 times and 12 times to the optical communications and energy businesses, respectively. The target price is approximately 16 times its forecast 2027 earnings per share of 2.49 yuan.