Nomura: Zhongji InnoLight: High-end optical modules lift growth expectations amid cost pressure and a lower valuation

Where did third-quarter growth strengthen or weaken?

In the third quarter of 2026, Zhongji InnoLight reported revenue of 27.8 billion yuan, up 171.8% year on year and 24.6% quarter on quarter. Net profit attributable to shareholders was 8.6 billion yuan, up 173.7% year on year and 8.5% quarter on quarter.
Profit grew more slowly than revenue quarter on quarter. The third-quarter gross margin was 46.6%, up 0.2 percentage points sequentially, but the net margin fell from 35.5% in the second quarter to 30.9%.
Profit excluding non-recurring items was 9 billion yuan, up 190% year on year and 22.3% quarter on quarter. Nomura considered this a solid result in the face of component shortages.

Persistent shortages of components such as optical chips, DSPs and mSAP PCBs prompted Nomura to adjust its global shipment mix forecasts: it expects 91 million 800G optical modules and 60.5 million 1.6T optical modules to be shipped in 2027.
Nomura expects 2.4T and 3.2T optical modules and NPO and CPO optical engines to drive growth over the next 3 to 5 years. It forecasts global shipments of 2.4T optical modules and NPO optical engines at 3 million and 5 million units respectively in 2027, rising to 8 million and 20 million units respectively by 2028.
The bank assumes the company will maintain a share of about 30% in the global market for optical modules above 100G, and expects the share of its revenue from the high-end products mentioned above to rise from 21% in 2027 to 42% in 2028. These products are more customized, and the company, as an integrated solutions provider, could capture more value, supporting profitability.

Citing its positive outlook for high-speed optical module demand and the expansion of the NPO and CPO businesses, Nomura raised its 2026 to 2028 revenue forecasts by 4% to 11% from its previous estimates. However, price increases for upstream materials such as optical chips and DSPs lowered its gross margin forecasts for the same period by 0.6 to 0.9 percentage points, and profit forecasts rose by only 0–8%.
Nomura is more optimistic about shipments, selling prices of high-speed products and the optical engine business. Its revenue forecasts for 2026 to 2028 are 23% to 46% above WIND market consensus, while its profit forecasts are 3% to 20% higher.
Geopolitical factors could disrupt supply chains and raise costs; high-end demand, the pace of product upgrades and price competition will also affect the growth outlook described above.

Nomura maintained its buy rating but cut its target price from 1375 yuan to 1196 yuan. The new target uses forecast earnings per share of 66.45 yuan for 2027 and a price-to-earnings multiple of 18 times, compared with 21 times previously.
The bank said the new valuation multiple is comparable to the median price-to-earnings ratio for China’s optical communications industry on WIND. The new target implies upside of about 88% from the closing price of 636.30 yuan on 28 October 2026.