Innolight (300308 CH)

3Q26 earnings: Solid fundamentals amid supply chain tightness

Innolight reported 3Q26 revenue of RMB27.8bn, up 172% YoY/24.6% QoQ. Net profit reached RMB8.6bn, up 174% YoY/8.5% QoQ, while net profit excluding non-recurring items increased to RMB9.0bn, up 190% YoY/22.3% QoQ. GPM expanded to 46.6%, continuing to accelerate from 46.1%/46.4% in 1Q/2Q26, supported by strong 800G/1.6T shipments, a favorable product mix and operating leverage. Fair-value losses on equity investment and FX losses related to the H-share proceeds weighed on earnings, masking stronger underlying profitability. We view the recent share price weakness as largely sentiment-driven rather than a reflection of operating performance, and maintain BUY with unchanged TP at RMB1400 (26x 2027E P/E).

Demand visibility and margins remain solid. The Company disclosed during earnings call that major overseas hyperscalers’ orders already extend into 2027, while certain key clients have provided explicit demand guidance for 2028. Product pricing remained broadly stable in 3Q26, and the Company described the current pricing environment as healthy and customer quotations as rational. Although DSP supply remains tight, mgmt. indicated that the Company has sufficient supply to support deliveries, reinforced by strategic relationships and LTAs with core suppliers.

 NPO is expected to ramp from 2H27E. Mgmt. expects 2.4T/NPO/XPO to enter initial volume production in 2H27, followed by faster scale-up deployment in 2028. The Company has already commenced joint development and sample deliveries with select key clients. Optical interconnects currently account for only c.5% of global AI capex, per mgmt., while this share is expected to increase to c.10% or more over the long term as scale-out/-up/-across/-in applications expand. Mgmt. expects 200G-perlane to remain mainstream through 2027-2028E, with 400G-per-lane solutions beginning to emerge in 2028E.

 Maintain BUY. Despite the recent share-price correction and geopolitica risk overhang, we see no imminent or material deterioration in Innolight’s fundamentals or global leadership in high-speed optical interconnects. Order visibility, pricing, margins and supply-chain execution remain solid. Key risks include supply chain disruptions, change in tech upgrade roadmaps, geopolitical uncertainties, etc.

Earnings Summary

Source: Company data, Bloomberg, CMBIGM estimates

BUY (Maintain)

Target Price RMB1400.00

Up/Downside 153.2%

Current Price RMB553.00

China Semiconductors

Zhimin ZHOU (852) 3850 5268 zhouzhimin@cmbi.com.hk

Kevin ZHANG (852) 3761 8727 kevinzhang@cmbi.com.hk

Aaron GUO (852) 3916 3715 aaronguo@cmbi.com.hk

Stock Data

Shareholding Structure

Share Performance

Source: FactSet

Financial Summary

Disclosures & Disclaimers

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CMBIGM Ratings

BUY

: Stock with potential return of over 15% over next 12 months

HOLD

: Stock with potential return of +15% to -10% over next 12 months

SELL

: Stock with potential loss of over 10% over next 12 months

NOT RATED

: Stock is not rated by CMBIGM

OUTPERFORM OUTPERFORM MARKET-PERFORM UNDERPERFORM UNDERPERFORM

: Industry expected to outperform the relevant broad market benchmark over next 12 months

: Industry expected to perform in-line with the relevant broad market benchmark over next 12 months

: Industry expected to underperform the relevant broad market benchmark over next 12 months

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