Goldman Sachs Remains Bullish on Eoptolink: Currency 'Black Swan' Pressures Quarterly Profit; Capacity Expansion to Support Future Performance

Optical module leader Eoptolink saw substantial revenue growth in the first quarter, but exchange losses dragged net profit below expectations. Goldman Sachs maintains a Buy rating, believing that multiple factors including capacity expansion and product mix upgrades will drive continued sequential revenue growth over the coming quarters. Eoptolink's Q1 revenue reached 8.338 billion RMB, a 106% year-over-year increase, yet net profit of 2.774 billion RMB fell about 12% short of Goldman Sachs' forecasts. Impacted by the earnings report, Eoptolink's trading volume on Friday hit 40 billion RMB, with the stock price falling more than 11%. According to the Zhufeng Trading Desk, Goldman Sachs analyst Ting Song explicitly stated in the report that the miss in net profit was primarily due to exchange losses driving up financial expenses, constituting a non-operating disturbance that does not alter the assessment of the company's subsequent fundamentals. Citigroup also noted in its report that the Q1 results do not affect Eoptolink's steady prospects, citing company statements that flat sequential revenue was mainly due to tight raw materials and capacity constraints, a situation expected to gradually improve starting from Q2. Both institutions share a consistent direction in their medium-term outlook for the company. Q1 Report: Revenue Beats Expectations, Net Profit Falls Short Due to Exchange Losses Eoptolink's Q1 revenue exceeded prior forecasts by approximately 10%, while gross margin rose slightly from 48.9% in the previous quarter to 49.2%. This improvement is attributed to manufacturing process optimization and product structure upgrades. The net profit side showed a significant gap. Although quarterly net profit of 2.774 billion RMB still grew 76% year-over-year, it declined sequentially by about 13%, falling 12% below forecasts. The report directly points out that higher-than-expected exchange losses were the core reason, pushing up financial expenses and causing the market's expectation of "profit growing in tandem with revenue" to go unfulfilled. Seasonal disturbances caused by exchange rate fluctuations do not affect the assessment of the company's future growth path; the focus remains on whether sequential growth can continue in the coming quarters. Four Drivers: Growth Logic Shifts to Structural Factors Sequential revenue growth over the next few quarters is broken down into four core drivers: continued improvement in optical module chip supply, upgrading of the product structure towards 1.6T and above solutions, an increasing revenue share from Silicon Photonics solutions, and the company accelerating capacity expansion to support rapid ramp-up in shipment volumes. Among these, the continued mass production of 1.6T optical modules and upgrades to higher-speed solutions, along with rising contributions from Silicon Photonics solutions, are viewed as more structural sources of incremental growth, positioning them as the core drivers for sequential growth from Q2 to Q4. While the report does not disclose specific revenue share data for 1.6T or Silicon Photonics solutions, they are already in the ramp-up phase in Q1, and their contribution is expected to continue increasing over the coming quarters. Accelerated Capacity Expansion: Thailand Phase II Progressing, Supply Constraints Easing On the supply side, Goldman Sachs lists capacity expansion as one of the key growth drivers. The report states that management indicated that construction progress at the Thailand base Phase II facility is on track, and the pace of capacity expansion is expected to accelerate further. Combined with the continued improvement in optical chip supply, supply bottlenecks previously constraining shipment growth are loosening. The timely advancement of Thailand capacity corroborates with the significant surge in the company's inventory and prepayments, providing supporting backing for shipment ramp-up in Q2 through Q4. Furthermore, compared to the income statement affected by exchange disturbances, changes in the balance sheet better reflect the company's preparation for subsequent shipments. As of the end of Q1, Eoptolink's inventory rose to approximately 9 billion RMB, a clear increase from 7.2 billion RMB at the end of the previous quarter; prepayments jumped to 682 million RMB, compared to just 17 million RMB at the end of the previous quarter, marking a significant sequential surge. These changes represent the company's "stockpiling ammunition" in the supply chain and capacity sectors, serving as proactive deployments for larger-scale optical module capacity ramp-up. Despite an optimistic fundamental assessment, the report maintains a 12-month target price of 518 RMB, calculated based on a 27 times forward P/E ratio using 2026 expected earnings. This multiple is roughly consistent with the company's average forward P/E ratio of 29 times since 2018. With the current stock price, there is approximately a 5% downside space relative to the target price. Goldman Sachs' stance reflects more of a bet on the "continuation of the growth trend" rather than an endorsement of the current valuation level.