Citi: Eoptolink’s third-quarter shipments delayed: Citi cuts earnings forecasts and target price

How large was the third-quarter shortfall?

Eoptolink’s third-quarter revenue was 10.94 billion yuan, up 80.3% year on year but down 13% quarter on quarter. It was 47.6% below Citi’s forecast and 38.4% below Bloomberg consensus.
Net profit was 3.843 billion yuan, up 61.2% year on year and down 19.1% quarter on quarter. It was 54.4% below Citi’s forecast and 48.6% below Bloomberg consensus.
Gross margin was 46.3%, down 1.7 percentage points quarter on quarter and 3.7 percentage points below Citi’s forecast. Lower-than-expected operating expenses partly offset the impact of the revenue shortfall on profit.

Management said flooding in Thailand delayed shipments starting in late September, pushing recognition of the associated revenue into the fourth quarter. The flooding did not cause any inventory impairment.
Inventory increased by approximately 5.8 billion yuan in the third quarter, and management expects about half of that increase to convert into sales in the fourth quarter. The company is confident it can meet its 2026 equity-incentive revenue target of 50 billion yuan, but that requires fourth-quarter revenue to exceed 18 billion yuan.
Deliveries also depend on supply chains and capacity. Tight supplies of digital signal processing chips (DSPs) affected production and deliveries in the third quarter; management expects the shortage to ease significantly from the fourth quarter. Capacity in Chengdu and Thailand is also expanding to support order demand in the fourth quarter and 2027.

Management believes industry demand remains strong and expects shipments of 1.6T optical modules to gradually ramp up from the fourth quarter, with their share of revenue rising rapidly in 2027. Prices for 800G and 1.6T products have shown no signs of decline.
Near-packaged optics (NPO) has entered the introduction phase. Order guidance from customers points to small-volume deliveries in 2027 and mass production in 2028; the company has begun planning equipment, capacity and materials.

Citi cut its revenue forecasts for 2026 and 2027 by 28.0% and 15.6%, respectively, and its net profit forecasts by 36.0% and 22.6%, respectively. In addition to the flood-related delay in revenue recognition, the bank lowered its gross margin assumptions for the next three years by approximately 5 percentage points because of changes in customer and product mix and rising component costs.
As capacity expands in Chengdu and Thailand, Citi raised its 2028 revenue forecast by 6.2%; however, its lower gross margin assumption still resulted in a 3.9% cut to its net profit forecast for that year.
Citi maintained its buy rating and lowered its target price from 701 yuan to 412 yuan. The new target applies a price-to-earnings multiple of 15.2 times forecast 2027 earnings per share, down from 20 times previously, to reflect recent shipments falling short of expectations.