$YOFC(06869.HK) Optical Fiber 0714— This Time It's Different

Although it's still quite weak now😂😂?

The past half month has been the darkest hour for optical fiber researchers. As the abandoned child of both the AI and price increase chains, the sector has fallen by 40%, with leading stocks more than halving. We've faced a lot of mockery and criticism. Some leaders kindly advised us to be more tactful, to stay silent when the market falls, and to proactively reach out for communication only when the market rises.

But we believe research requires sincerity. We cannot control capital preferences, predict stock price movements, nor cater to companies' demands. The only thing we can do is closely track the real progress of the industry and truthfully convey information to the market. If we can correct some of the market's erroneous expectations, that is also a gain for us.

In April, when UAV (drone) optical fiber prices peaked, we advised the market to focus on AI as the core logic, stating that AI would be the strongest marginal improvement driver for the next several quarters. At the time, the market generally believed UAV business could deliver performance, while simultaneously judging that YOFC's long-term agreement orders would not contribute to performance in the long run. The reality is, YOFC, which did not invest in UAV optical fiber business, had a Q2 profit center of 22 billion yuan, basically on par with Hengtong Optic-Electric, which did invest in UAV optical fiber. Previously, the market consensus expected YOFC's profit to be only half of Hengtong's. Excluding submarine and power cable businesses, YOFC's single-quarter profit ranked first among all optical fiber companies in the industry.

We have previously elaborated multiple times on the industry capacity expansion logic, so we won't repeat it here, only adding core points: Second-tier optical module manufacturers' capacity expansion will not shake Zhongji Innolight's leading industry position. The market severely underestimates the technical barriers of high-end optical fiber and the difficulty of expanding optical fiber capacity.

Industry veterans with over four years of AI track investment experience suggest reviewing the 2023 optical module market trend and the 2026 optical fiber trend. Veterans with over two years of optical module investment experience suggest looking back at the performance of Zhongji Innolight and Suzhou TFC Optical Communication after Q2 2025 earnings disclosure. Industry insiders can understand the underlying logic; deeper content is not convenient to elaborate.

YOFC's Q1 net profit was 5 billion yuan, Q2 net profit was 22 billion yuan. The low Q1 profit was due to the concentrated delivery of a large number of low-price orders from operators, with North American long-term agreement unit prices at only $10. Although Q2 still involved delivering some low-price operator orders, North American long-term agreement prices were raised to $13, and further increased to $15 in early June, with these orders expected for Q3 delivery. At the end of June, Fujikura, Furukawa, and Corning simultaneously raised product prices by 20%-30%. The industry expects optical fiber prices to continue rising in Q3, giving YOFC significant performance elasticity for the following quarters.

Raise YOFC's full-year performance guidance to 100 billion yuan, and raise 2027 performance guidance to 200 billion yuan. The Hong Kong stock target has a forward P/E of 11x for 2026 and only 5x for 2027, making it the lowest-valued AI hardware-related asset globally, excluding Samsung and SK Hynix.$YOFC(601869.SH)