---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 177781
conversation_id: ace3559f-6985-44a8-8816-6ad8188ba0e1
citations: 14
created: 2026-05-31 21:52:33Z
---

# What is the investment thesis for Zhongji Innolight in the current market environment?

# Investment Thesis — Zhongji Innolight (300308 CH)

## Latest CLSA Anchor View

CLSA (lead analyst Tony Zhang, with Chris Liu) maintains an **Outperform (O-PF)** rating with a **12-month target price of Rmb102.6 (~+28% upside)**, last refreshed on 23 April 2025 after 1Q25 results. This is a meaningful de-rating from CLSA's prior Rmb164.6 TP (Feb 2025) and Rmb203.0 TP (Jan 2025), reflecting both earnings cuts and a lower applied multiple [2][12]. Note: corpus latest published date is 23-Apr-2025 — "latest" view here is as of that date, not literal today.

| TP date | TP (Rmb) | Multiple | Rating |
|---|---|---|---|
| 23-Apr-2025 | 102.6 | 13x | O-PF [2] |
| 09-Feb-2025 | 164.6 | 18x 26CL PE | O-PF [10] |
| 08-Jan-2025 | 203.0 | 23x 25CL PE | O-PF [12] |

---

## The Core Bull Thesis (Why Own the Stock)

**1. Pure-play on AI capex via optical transceivers.** Innolight's earnings trajectory from 2023 is being driven by a step-function shift in product mix toward 800G/400G transceivers (higher margin) and 1.6T (still ramping), powered by **North America hyperscaler AI computing-power infrastructure** demand [7]. CLSA's mix model projects 800G + 1.6T moving from ~38% of revenue in 2024 to **~81% by 2026 and ~87% by 2027** (vs essentially zero exposure in 2022). Segment gross margins on 800G (~35-36%) and 1.6T (~36-38%) are the highest in the product stack [6].

**2. Hard guidance for 2025 unchanged despite macro noise.** Management has reaffirmed **15-20mn units global 800G shipment guidance for 2025**, with 1.6T shipment ramp-up from 2Q25 and hyperscalers expected to broadly adopt 1.6T in Ethernet networks from 2026. Domestic hyperscalers are showing strong 400G demand in 2025-26, and are expected to begin 800G adoption from 4Q25 — a second leg of demand on top of the US hyperscaler base [4].

**3. ByteDance / domestic CSP second engine.** Innolight is named as a direct beneficiary of ByteDance's accelerating AI infrastructure spend on Nvidia Blackwell overseas (training) and Huawei Ascend / Cambricon domestically (inference), with ByteDance's ASIC for overseas datacenters set to ramp from 26CL [11]. This diversifies the customer base beyond the US hyperscaler concentration that drives the bear narrative.

**4. Tariff exposure is structurally manageable.** Management states "currently there was no tariff on exports of transceivers from its Thailand factory to US," and is **expanding Thailand capacity** to absorb US client demand [5]. Separately, the **US announced exemption from reciprocal tariffs on electronics including optical transceivers (with China within scope)** on 13 April 2025, removing the acute tariff overhang for the domestic-manufactured portion [13]. CLSA explicitly states "market concerns on co-packaged optics (CPO) and tariffs are largely priced-in" [12].

**5. Margin expansion under way.** **GPM rose +1.4ppt QoQ to 35.1% in 4Q24 and a further +1.6ppt QoQ to 36.7% in 1Q25**, driven by improving product mix and rising yield at the Thailand base [3]. EBIT margin is modeled to grind from 24.9% (2024A) to 26.5% by 2027CL [14].

**6. 1Q25 earnings momentum already strong.** 1Q25 net profit **+57% YoY / +12% QoQ to Rmb1.6bn** despite the EML chip shortage drag, with revenue +38% YoY to Rmb6.7bn [3]. 4Q24 revenue +78% YoY and 4Q24 net profit +62% YoY [3].

---

## Catalysts

1. Overseas CSPs placing orders / bidding for 1.6T optical transceiver volumes [8].
2. Domestic CSPs bidding and placing orders for 800G transceivers (the 4Q25 inflection management is signaling) [8].
3. 100G EML supply easing in 2Q-3Q25 as suppliers expand capacity and silicon photonics (SiPh) penetration grows [4].
4. Thailand capacity reaching full ramp — both a tariff-mitigation and capacity-add story [5].

---

## CLSA Financial Model (as of 23 April 2025)

| Year to 31 Dec (Rmbm) | 2023A | 2024A | 2025CL | 2026CL | 2027CL |
|---|---|---|---|---|---|
| Revenue | 10,718 | 23,862 | 33,480 | 37,925 | 39,958 |
| Net Profit | 2,174 | 5,171 | 7,518 | 8,644 | 9,105 |
| Net Profit YoY | +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% |
| Net Debt/Equity | (19.3)% | (14.6)% | (18.3)% | (26.9)% | (35.1)% |
| Capex/sales | 15.9% | 12.0% | 6.0% | 4.3% | 4.1% |

Source: CLSA "Tariff impact manageable" 23-Apr-2025 [14].

**The framework**: revenue growth decelerates from ~+40% in 2025 to mid-single-digit by 2027 as base effects compress, but **mix continues to enrich** — 1.6T scales from 2% (2024) to 19% (25CL) to 40% (26CL) to 45% (27CL) of revenue [6]. ROE remains north of 25% and net cash builds rapidly, with capex/sales falling sharply as the Thailand build-out completes.

**Valuation discipline**: CLSA values Innolight at 13x PE in their latest cut — well **below the 5-year average PE of 28x** [2]. This already incorporates the slowing AI capex growth into 26CL and increasing CPO adoption assumption. Net-cash balance sheet (net debt/equity ~-18% rising to -35% by 27CL) supports the dividend yield rising from 0.6% to 2.1%.

---

## What's in the Price (Why TP Was Cut)

CLSA's two recent TP cuts trace explicitly to:

1. **1.6T shipment delay** with key AI clients' product delay (linked to Nvidia GB200/GB300 rack technical issues) → 25/26CL net profit cut **14%/13%** in April; previously **9.3%/6.6%** in February [2][10].
2. **800G shipment constraint from continued 100G EML chip shortage** [2].
3. **CPO (co-packaged optics) overhang in the long run** — incremental adoption could disintermediate pluggable transceiver demand from 27CL+ [2][10].
4. **Slower AI training demand post-DeepSeek** — smaller model sizes and dropping inference costs raised questions on whether hyperscalers continue to require the highest-performance interconnect investment at the same pace [10].

PE has been compressed from 23x → 18x → 13x in three months, almost entirely on multiple, not on absolute earnings power. **The stock has dropped ~22% in the last 1M and ~39% in the last 3M** going into the April note, so most of the de-rating has already mechanically occurred [2].

---

## Key Risks

- **Flat capex from telecom operators** — drag on 200G/100G/low-speed legacy products [9].
- **Slower-than-expected AI adoption and 800G/400G demand** [9].
- **Fierce competition** within the optical transceiver supply chain (Coherent/Finisar, Eoptolink, plus Nvidia's own Mellanox/Fabrinet in-house option) [9].
- **Continued upstream tightness** in 100G EML and other components delaying delivery [9].
- **Macro: high interest rate environment / CSP capex flat-lining** [9].
- **CPO long-run disintermediation** — even if CLSA assumes it's priced in at 13x PE, an accelerated CPO shift would impair the 27CL+ tail [2].
- **Tariff regime reversal** — current Thailand-routing solution and electronics exemption are policy-dependent [5][13].

---

## Bottom Line

The investment thesis is a **higher-quality, lower-multiple AI infrastructure play** post the Q1 2025 reset. The earnings algorithm — 800G ramp + 1.6T inflection from 2Q25 + domestic CSP second wave from 4Q25 + Thailand-based tariff insulation — is intact, but the multiple has compressed sharply to reflect (a) the GB200/300-driven 1.6T delay, (b) 100G EML supply tightness, and (c) CPO long-term disintermediation risk. CLSA's stance is that **the negative narratives are largely in the price at 13x PE** (vs 5-year average of 28x) with a Rmb102.6 TP implying ~28% upside [1][2][12]. The bull case requires the 1.6T ramp from 2Q25 to land and for domestic 800G order flow to materialize in 4Q25 as guided.

---

**Sources**
[1] Zhongji Innolight — O-PF (Tariff impact manageable) — CLSA (23 April 2025) — 607956627LinqAlpha.PDF
[2] Zhongji Innolight — O-PF (Tariff impact manageable) — CLSA (23 April 2025) — 607956627LinqAlpha.PDF (TP/PE de-rating recap)
[3] Zhongji Innolight — O-PF (Tariff impact manageable) — CLSA (23 April 2025) — 607956627LinqAlpha.PDF (1Q25 results, GPM)
[4] Zhongji Innolight — O-PF (Tariff impact manageable) — CLSA (23 April 2025) — 607956627LinqAlpha.PDF (800G guidance, domestic CSP ramp)
[5] Zhongji Innolight — O-PF (Tariff impact manageable) — CLSA (23 April 2025) — 607956627LinqAlpha.PDF (Thailand capacity, tariff mitigation)
[6] Zhongji Innolight — O-PF (Tariff impact manageable) — CLSA (23 April 2025) — 607956627LinqAlpha.PDF (product mix table)
[7] China technology (Acceleration in AI application) — CLSA (9 February 2025) — 607949941LinqAlpha.PDF (investment thesis)
[8] China technology (Acceleration in AI application) — CLSA (9 February 2025) — 607949941LinqAlpha.PDF (catalysts)
[9] China technology (Acceleration in AI application) — CLSA (9 February 2025) — 607949941LinqAlpha.PDF (investment risks)
[10] China technology (Acceleration in AI application) — CLSA (9 February 2025) — 607949941LinqAlpha.PDF (Feb TP revision rationale)
[11] China Technology (Solid progress) — CLSA (21 January 2025) — 607948572LinqAlpha.PDF (ByteDance AI capex beneficiary)
[12] All Things China — Zhongji Innolight (Intact growth in 2025) — CLSA (8 January 2025) — 607947723LinqAlpha.PDF
[13] China Technology (iPhone exempt from tariff) — CLSA (13 April 2025) — 607955785LinqAlpha.PDF (electronics tariff exemption)
[14] Zhongji Innolight — O-PF (Tariff impact manageable) — CLSA (23 April 2025) — 607956627LinqAlpha.PDF (Financials at a glance)

## 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] **607949941LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/02/607949941LinqAlpha.PDF>
- [8] **607949941LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/02/607949941LinqAlpha.PDF>
- [9] **607949941LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/02/607949941LinqAlpha.PDF>
- [10] **607949941LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/02/607949941LinqAlpha.PDF>
- [11] **607948572LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/01/607948572LinqAlpha.PDF>
- [12] **607947723LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/01/607947723LinqAlpha.PDF>
- [13] **607955785LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607955785LinqAlpha.PDF>
- [14] **607956627LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956627LinqAlpha.PDF>

