Nomura: Tianfu Communication’s third-quarter growth rebounds: passive components improve margins, while optical engines remain constrained by component shortages

Third-quarter growth rebounded. What happened to margins?

Tianfu Communication’s revenue and earnings in the third quarter of 2026 rose 31.5% and 55.3% year on year, respectively, and 28.4% and 23.5% quarter on quarter, rebounding from a weak second quarter. Nomura sees robust demand for passive components and improved component supply as the main drivers.
Third-quarter gross margin rose 11.4 percentage points year on year and 0.4 percentage points quarter on quarter. Nomura attributed this to stronger performance by high-margin products and an improved product mix. Over the same period, the expense ratio rose 3.0 percentage points year on year and 0.6 percentage points quarter on quarter, while net margin increased 7.0 percentage points year on year but fell 1.8 percentage points quarter on quarter.

Nomura is optimistic about demand for passive components such as fiber array units (FAUs) in high-end optical modules and the future NPO and CPO markets, and raised its 2026–2028 passive-component revenue forecasts by 14.6%–57.6%. These products have higher gross margins, and their growing revenue contribution has also improved the overall earnings mix.
Optical engines for global AI customers remain affected by component shortages. Although Nomura expects supply may improve quarter by quarter, it lowered its 2026–2028 revenue forecasts for active components, principally optical engines, by 8.2%–15.8%.
Reflecting lower expected optical-engine shipments, Nomura cut its 2026 revenue and earnings forecasts for the company by 5.6% and 2.0%, respectively, to 11.089 billion yuan and 3.797 billion yuan.

Nomura expects the company to benefit from upgrades to 1.6T optical modules and increased adoption of near-package optics (NPO) and co-packaged optics (CPO) over the next two to three years. These markets are growing faster, and the contribution from high-margin passive components is rising. The bank therefore raised its 2027–2028 revenue forecasts by 3.1%–8.2% and earnings forecasts by 8.2%–15.2%.
After the revisions, Nomura forecasts 18.227 billion yuan in revenue and 6.636 billion yuan in net profit for 2027, and 29.462 billion yuan and 10.989 billion yuan, respectively, for 2028. Its 2026–2028 revenue forecasts are 28%–49% above WIND consensus, and its earnings forecasts are 7%–34% higher, mainly because it is more optimistic about NPO and CPO business expansion.

Nomura maintained its buy rating but lowered its target price from 282 yuan to 232 yuan. The bank reduced its applied 2027 forward price-to-earnings multiple from 50 times to 38 times, the latter in line with the median price-to-earnings ratio for the China A-share CPO sector on WIND. The corresponding 2027 forecast earnings per share are 6.10 yuan.
Based on the closing price of 201.43 yuan on 28 October 2026, the target price implies approximately 15.2% upside. Downside risks identified by Nomura include weaker-than-expected demand for optical devices and modules, technological changes that erode competitiveness, and major customers adjusting their strategies or diversifying their supply chains.