Leiqing Technology (2455) benefits from the global leader in Indium Phosphide (InP) substrates, AXT, which recently signed a three-year supply contract with Coherent, a supplier of optical communication for NVIDIA. It is expected that the momentum of AI optical communication epitaxy business will rapidly strengthen, entering a performance explosion period starting in the second half of the year.

Looking ahead, Leiqing pointed out that with the strong demand for Indium Phosphide (InP) from AI data centers, coupled with the company's successful acquisition of substrate material sources from AXT, the shipment momentum for epitaxy in the third quarter is expected to significantly strengthen, ushering in the first wave of explosive growth for the year, with an optimistic operational outlook for the second half of the year.

It is reported that AXT has agreed to expand the production capacity of its Beijing factory in mainland China from 2026 to 2028. After obtaining Indium Phosphide substrates, Coherent will transfer them to epitaxy manufacturers to produce Indium Phosphide epitaxy chips, which will then be used to supply optical communication chips and modules to NVIDIA.

Industry insiders pointed out that the agreement between AXT and Coherent highlights the increasing demand for Indium Phosphide in the AI market. The Indium Phosphide substrates from AXT will be made into Indium Phosphide epitaxy chips and shipped to Coherent. It is anticipated that this supply contract will help Leiqing's order visibility extend to 2028.

Regarding industry dynamics, Leiqing does not comment on individual customers but emphasizes that the company has secured material sources from upstream Indium Phosphide substrate suppliers in mid-June and has recently begun mass production and shipment to optical communication customers. Revenue in June has already started to contribute, with full contributions expected in July and August, estimating that operational momentum in the third quarter will grow significantly compared to the second quarter.

Additionally, due to the continuous rise in raw material prices and the market's supply-demand imbalance, Leiqing has notified optical communication customers of a second price increase for Indium Phosphide epitaxy in the second quarter, with each increase in double digits. In this regard, Leiqing stated that based on the current supply-demand situation and costs, further price increases in the third quarter cannot be ruled out.

Leiqing's revenue in June was 326 million yuan, a month-on-month increase of 1.6% and a year-on-year increase of 23.6%. Cumulatively, the revenue for the first half of the year reached 1.924 billion yuan, a year-on-year increase of 27.6%. This year, Leiqing will purchase five new MOCVD machines, expanding from 62 to 67 machines, with the new machines expected to arrive in the third quarter and the new capacity to be operational by the end of the year.

Regarding various business developments, Leiqing's internal target for the optoelectronic business is to achieve triple-digit growth in shipments of 800G receiver products, while the next-generation 1.6T products have completed verification and entered the mass production stage. The upgrade in transmission speed not only enhances the average selling price (ASP) but also contributes to overall profit improvement