---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 220260
conversation_id: 89f2a8fd-1380-474b-8d14-b20fccbc42dc
citations: 13
created: 2026-05-31 21:54:41Z
---

# What’s the bull case bear case for Zhongji Innolight?

# Zhongji Innolight (300308 CH) — Bull Case vs Bear Case

**Subject:** Zhongji Innolight Co., Ltd. — Shenzhen ChiNext-listed optical transceiver leader; global #1 share in 400G/800G high-speed modules supplying NVIDIA-ecosystem hyperscalers.

**Latest CLSA stance (most recent dedicated note):** OUTPERFORM, TP **Rmb102.6** (12M), based on **13x 26CL EPS** of Rmb7.89 — compressed from the prior 18x and well below the 5-year average PE of ~28x to factor in slower AI capex growth and CPO risk [1][6]. Note this is a significant cut from the **8-Jan-25 TP of Rmb203** (62% upside at the time), which had viewed CPO/tariff concerns as "largely priced-in" [9]. Spot at the note's reference date was Rmb80.07 (priced 22-Apr-25), giving ~28% potential upside [4].

---

## 1. The Bull Case

### 1.1 Structural AI demand still robust; 800G guidance reaffirmed

- Company maintained **2025 global 800G shipment guidance of 15–20mn units** despite tariff/macro noise, with EML shortage expected to ease in 2Q–3Q25 as suppliers expand capacity and silicon photonics (SiPh) penetrates [4].
- **Domestic hyperscaler demand inflecting**: Strong demand for 400G in 2025–26 from Chinese hyperscalers, who may also commence adopting 800G transceivers from 4Q25 onward — a second leg beyond the original North American customer base [4].
- Company commentary on industry calls confirms that **2025 800G demand guidance grew meaningfully YoY**, driven by (i) AI inference demand → bandwidth growth and (ii) maturing 51.2Tb/s switch ASICs being ordered in volume, building Ethernet-based AI data center networks alongside 800G modules [10].
- Public IR transcripts also emphasize that 800G and 1.6T serve **non-overlapping use cases** — 800G for inference / train-inference unified networks, 1.6T for advanced LLM training — so 1.6T ramping does NOT cannibalize 800G [10].

### 1.2 1.6T ramp is the next growth lever (50%+ of revenue by 2027)

- Company expects **1.6T product shipments to ramp from 2Q25**, with more hyperscaler clients adopting 1.6T transceivers on Ethernet networks **from 2026** [4].
- CLSA's modelled product mix is dramatic: **1.6T+ revenue share moves from 0% (2023) → 2% (2025CL) → 40% (2026CL) → 45% (2027CL)** as 800G falls from 59% (2025) to 42% (2027) [7]. This mix shift is high-margin: CLSA models 1.6T GPM at ~37–38% vs ~35% for 800G [7].
- The earlier CLSA Jan-25 daily note framed Innolight as a direct beneficiary of **NVIDIA GB300 rack ramp from 2H25**, with "intact strong growth in 2025" [9].

### 1.3 Tariff overhang is being engineered around — Thailand capacity is the lever

- **Currently no tariff on transceiver exports from Innolight's Thailand factory to the US** — and the company is actively expanding Thailand capacity to meet US client demand [2][5].
- This is not a new build: Innolight told investors it has been "expanding production capacity overseas since 2019" with **over 70,000 sqm of factory space already in Thailand**, fully audited by overseas major customers and capable of 400G/800G high-end production [12]. The infrastructure is in place; the bull case is incremental margin protection through location arbitrage, not greenfield risk.

### 1.4 Financial engine remains best-in-class

| Metric | 2023A | 2024A | 2025CL | 2026CL | 2027CL |
|---|---|---|---|---|---|
| Revenue (Rmbm) | 10,718 | 23,862 | 33,480 | 37,925 | 39,958 |
| Net profit (Rmbm) | 2,174 | 5,171 | 7,518 | 8,644 | 9,105 |
| Net profit growth | +78% | +138% | +45% | +15% | +5% |
| EBIT margin | 20.9% | 24.9% | 26.2% | 26.5% | 26.5% |
| ROE | 16.6% | 31.0% | 33.6% | 29.6% | 25.0% |
| FCF (Rmbm) | 193 | 298 | 2,743 | 5,633 | 7,049 |
| Net debt/equity | (19.3%) | (14.6%) | (18.3%) | (26.9%) | (35.1%) |

Source: CLSA estimates [8]

- **Revenue +40% YoY** still modelled for 2025CL on a base that already grew **123% in 2024** [8].
- **GPM expansion**: improved 1.6ppt QoQ to 36.7% in 1Q25 on better product mix and improving yield at Thailand base [3]. 1Q25 net profit was +57% YoY / +12% QoQ to Rmb1.6bn even WITH the EML drag [2].
- Net cash balance sheet builds from Rmb3.0bn (2024A) to Rmb14.9bn by 2027CL — funding capacity for upside scenarios without dilution [8].
- **FCF inflects materially** (+819% YoY in 2025CL), reflecting capex/sales falling from 12.0% (2024) to ~4% by 2027 as the Thailand build cycle normalizes [8].
- Silicon photonics offers an **additional margin uplift lever**: management says SiPh modules carry a structural GPM advantage vs traditional EML solutions due to lower BOM costs (fewer active/passive components) and self-developed silicon photonic chips that increase in-house value capture [13]. CLSA models SiPh-rich 1.6T at 37–38% GPM vs traditional segments [7].

### 1.5 Valuation has reset to a defensible level

- Stock was -21.8% 1M / -39.3% 3M / -29.2% 12M into the April 2025 note, taking the multiple to **11.7x 25CL PE / 10.1x 26CL PE** — well below the 5-year average of ~28x [8][6].
- Net cash position (-18.3% to -35.1% net debt/equity through 2027CL) leaves room for further capital return: dividend yield rising from 1.0% (2024) to 2.1% (2027CL); payout ratio held at 20% [8].

---

## 2. The Bear Case

### 2.1 AI capex deceleration risk into 2026

- The core reason CLSA cut its TP from **Rmb164.6 → Rmb102.6** (-38%) and the PE multiple from **18x → 13x** is "AI capex growth slowing down in 26CL" [1][6]. CLSA modelled revenue growth decelerating from +40% (2025CL) → **+13% (2026CL) → +5% (2027CL)** [8].
- A 13x multiple on 26CL EPS is already a deeply discounted multiple vs Innolight's 5-yr average ~28x — but the bear says even this assumes hyperscaler capex stays elevated. If hyperscaler capital intensity normalizes, the multiple has more room down, not up.
- Public earnings transcripts even from the company itself acknowledge investor "concerns about the long-term capital expenditures and demand of cloud vendors" — confidence depends on continued capex commitment from a small set of mega-customers [11].

### 2.2 Co-Packaged Optics (CPO) is the existential long-run threat

- CLSA explicitly cites **"increasing adoption of co-packaged optics (CPO) in the long run"** as a key reason for the de-rating [1].
- CPO integrates optics directly into the switch ASIC package, displacing pluggable transceivers — Innolight's core product. The risk is not 2025 demand but the post-2027 architectural transition. If hyperscalers (esp. NVIDIA, Broadcom-ecosystem) shift sooner or more aggressively than expected, the 1.6T pluggable cycle becomes the **last big cycle** rather than the launchpad for 3.2T+.
- Even management's framing — that 3.2T pluggable "is sustainable" and the industry will iterate — acknowledges the technology debate is live, and that customers "should have different solutions to promote" beyond 3.2T [12].

### 2.3 Supply-chain bottleneck — 100G EML shortage is a real, current constraint

- 1Q25 was "**dragged by continued component supply shortage in 100G electro-absorption-modulated laser (EML) and delay of 1.6T products**" [3]. This isn't a forecast risk — it's already cutting shipments.
- CLSA cut 25/26CL net profit by **14% / 13%** to incorporate 1.6T shipment delay and 800G shipment constraint due to continued 100G EML chip shortage [1].
- Management acknowledges 200G EML (for 1.6T) and 100G EML/VCSEL (for 800G/400G) supply will remain tight, and that without proper advance planning, 2025 ramps could be supply-constrained [12].

### 2.4 1.6T ramp execution risk — concentrated on a few customer programs

- The 1Q25 delay was specifically due to **"key AI clients' product delay"** [2]. Innolight's 1.6T ramp depends heavily on a handful of hyperscaler / NVIDIA-ecosystem programs — if any one slips, the mix-shift bull case slips with it.
- The 19% 1.6T revenue share assumed for 2025CL [7] is the inflection. Missing this slips the whole margin/growth trajectory.

### 2.5 Tariff overhang is not fully neutralized

- "Currently" no tariff on Thailand exports [5] — but US trade policy is mobile. A widening of tariffs to cover Thailand transhipment, or specific carve-outs against Chinese-owned facilities, would force margin compression or order reallocation.
- Innolight has been **resetting forecasts down**: 25/26/27CL revenue cut by **~10% each year** and net profit cut by **~13% each year** vs the prior April 2025 model [8]. CLSA estimates remain ~13–17% below consensus EPS through 2027CL [4], implying the sell-side has not yet fully marked to the new reality.

### 2.6 Price erosion is a baked-in feature of the business model

- Management openly states **"800G is an old product, there will naturally be an annual decrease in prices"** [12]. The bull case requires offsetting ASP decline with (i) volume ramp, (ii) mix shift to 1.6T, and (iii) yield/SiPh-driven cost takeout. If any of those three legs weakens, GPM compresses.
- ASP cuts on 800G are visible in CLSA's segment GPM build: 800G GPM ticks down from 38% (2024A) → 35% (2025CL) → 34.5% (2026CL) → 34.3% (2027CL) [7].

### 2.7 Concentration / cyclical exposure

- Bull-side optionality (NVIDIA GB300, hyperscaler 1.6T adoption from 2026) [4][9] is also a concentration vulnerability — Innolight is highly levered to a small set of NVIDIA-ecosystem hyperscalers. Customer-specific roadmap shifts (CPO timing, in-house silicon, dual-sourcing) hit revenue directly.
- Public commentary from the company has emphasized that **"the optical module supply pattern has not changed significantly" and "no new suppliers have appeared"** at major customers [10]. That's currently a moat — but it's also why any single customer's architectural shift is impactful.

---

## 3. Synthesis — How the Bull / Bear Resolve

| Time horizon | Bull anchor | Bear anchor | Likely arbiter |
|---|---|---|---|
| **2025** | 800G volume ramp + Thailand mitigates tariff | EML shortage caps shipments, 1.6T delayed | Quarterly EML resolution + 1.6T 2Q25 ramp confirmation |
| **2026** | 1.6T ramps to 40% of revenue [7]; domestic 800G inflection | AI capex grows slower; hyperscaler order moderation | Hyperscaler 2026 capex guides (4Q25–1Q26) |
| **2027+** | 3.2T pluggable cycle extends [12] | CPO displacement begins in earnest | NVIDIA / Broadcom CPO product roadmap milestones |

**The base case (CLSA O-PF, TP Rmb102.6)** [1] sits between these: it accepts the AI capex deceleration into 2026 and the CPO de-rating risk (PE 18x → 13x) but believes the 800G/1.6T cycle still produces +45% net profit growth in 2025CL and +15% in 2026CL [8], with a fortress balance sheet and Thailand-led tariff insulation [5].

**Where bull > base**: if domestic hyperscaler 400G/800G adoption from 4Q25 surprises to the upside [4] AND EML shortage resolves cleanly in 2H25 [4], the 1.6T ramp into 2026 could re-expand multiples back toward the historical 18–20x range.

**Where bear > base**: if (i) any single major NVIDIA-ecosystem customer pulls in CPO adoption, (ii) tariffs widen to cover Thailand, or (iii) 2026 hyperscaler capex guides decelerate more than the modelled +13% revenue growth implies, both EPS and multiple compress together — the classic optical-module cycle de-rating.

---

**Sources**

[1] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — 607956627LinqAlpha.PDF — target price / PE compression / CPO risk
[2] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — 1Q25 results & guidance
[3] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — EML shortage / margin detail
[4] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — 800G/1.6T shipment guidance, domestic hyperscalers
[5] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — Thailand tariff exposure
[6] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — Valuation methodology
[7] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — Annual earnings summary / product mix table
[8] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — Financials at a glance
[9] All Things China (CLSA ATC Daily, incl. Zhongji Innolight) — CLSA (8 Jan 2025) — 607947723LinqAlpha.PDF — Tony Zhang prior view at TP Rmb203
[10] Zhongji Innolight — Investor Relations Management Information (28 Aug 2024) — Earnings call transcript on 2025 800G demand guidance / inference workloads
[11] Zhongji Innolight — Investor Relations Management Information (24 Jun 2024) — 1H24 results & robust demand commentary
[12] Zhongji Innolight — Investor Relations Management Information (14 Jul 2024) — Thailand capacity, EML/VCSEL supply, 3.2T pluggable roadmap
[13] Zhongji Innolight — Investor Relations Management Information (29 Aug 2024) — Silicon photonics GPM structural advantage

## Citations

- [1] **607956627LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956627LinqAlpha.PDF>
- [2] **607956627LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956627LinqAlpha.PDF>
- [3] **607956627LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956627LinqAlpha.PDF>
- [4] **607956627LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956627LinqAlpha.PDF>
- [5] **607956627LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956627LinqAlpha.PDF>
- [6] **607956627LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956627LinqAlpha.PDF>
- [7] **607956627LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956627LinqAlpha.PDF>
- [8] **607956627LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956627LinqAlpha.PDF>
- [9] **607947723LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/01/607947723LinqAlpha.PDF>
- [10] **300308中际旭创投资者关系管理信息20240617** · external
- [11] **300308中际旭创投资者关系管理信息20240825** · external
- [12] **300308 Zhongji Xuchuang Investor Relations Management Information 20240714** · external
- [13] **Investor Relations Management Information for Intercorp Xuchuang on August 29, 2024.** · external

