How has the business focus changed?

  • The share of Ligent’s revenue from datacom optical modules rose from 24.9% in 2023 to 65.5% in 2025, and further to 69.4% in the first half of 2026. Designed for high-speed data connections in AI and cloud computing, these products have become the company’s main source of revenue.
  • Company revenue was 8.355 billion yuan in 2025, up 64% year on year; revenue in the first half of 2026 was 5.393 billion yuan, up 27.9% year on year. Citi believes the acceleration in 2025 came mainly as demand for AI-related datacom optical modules began to scale.

Why does Citi expect growth to accelerate markedly in 2027?

  • Citi forecasts revenue of 11.907 billion yuan in 2026 and 29.693 billion yuan in 2027, representing year-on-year growth of 43% and 149%, respectively. Its thesis is that the ramp-up of 800G and 1.6T products, shipment growth and global customer expansion will occur together.
  • The bank expects datacom optical module shipments to rise from 12 million units in 2025 to 14.7 million in 2026 and 29.3 million in 2027. Over the same period, it expects the average selling price to rise from 447 yuan per unit to 587 yuan and 841 yuan, mainly because higher-speed products will account for a larger share.
  • The company commercialized its 1.6T products in the second half of 2026. Its 1.6T LPO optical modules have minimum power consumption of about 10 watts, around 60% less than conventional DSP solutions; low power consumption gives the high-speed products a specific competitive feature.

How do product upgrades affect profits and funding?

  • The company’s gross margin was 20.0% in 2025 and rose to 24.2% in the first half of 2026. Citi expects it to reach 26.5% in 2027, based on a growing share of higher-priced 800G and 1.6T products and improved unit economics from production scale.
  • Citi forecasts net profit of 3.577 billion yuan in 2027, about 193% above its forecast of 1.221 billion yuan for 2026. Expansion also ties up funds: the bank expects capital expenditure of 2.5 billion yuan and operating cash flow of 539 million yuan in 2026, with free cash flow to shareholders of negative 1.961 billion yuan.
  • Actual cash flow is already under pressure: operating cash outflow was 1.256 billion yuan in the first half of 2026; trade receivables stood at 2.412 billion yuan as of the end of June, and inventory turnover was approximately 118 to 130 days from 2023 through the first half of 2026.

What are the capacity, customer and regulatory constraints?

  • Phase one of Thailand Plant A began production in the second quarter of 2026, and Plant B is expected to start production before the end of 2027. The expanded US plant is expected to be operational by the end of 2026, focusing on US customers’ demand for 800G and 1.6T products. The company’s optical module capacity utilization was 73.1% in the first half of 2026, below 79.1% in 2025.
  • Customer concentration is high: the top five customers’ share of revenue rose from 55.8% in 2023 to 71.8% in the first half of 2026. Changes in major customers’ orders therefore have a significant effect on revenue and earnings.
  • Citi believes no rules currently in force prohibit imports of Chinese optical modules, and near-term regulatory risk for existing 800G and 1.6T business is low. If future restrictions are placed on the sourcing of key components, the US market may require the use of compliant third-party chips, weakening the cost and supply-chain advantages of the company’s own optical chips.

How does Citi value the company?

  • Citi initiated coverage with a Buy and High Risk rating and a target price of HK$33.40, implying a 70.4% expected share price return from the HK$19.60 share price on 27 October 2026.
  • The target price uses a sum-of-the-parts valuation: the optical module business is valued at 6 times forecast 2027 earnings per share, and the optical chip business at 15 times. Citi applies a discount to peers because the company has a strong but not dominant market position, and its optical chip business is still in the early stages of scaling up.