BofA: Zhongji Innolight: Long-Term Positives, From Scale-Out to Scale-Up; Lift PO to CNY780, Reiterate Buy
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Bank of America reiterated its Buy rating on Zhongji Innolight and raised the target price from CNY 580 to CNY 780, following a 2–14% upward revision in 2025–2027 EPS estimates and a valuation roll-over. The firm sees robust demand for 800G and 1.6T optical modules persisting through 2027, driven by the ongoing evolution from scale-out to scale-up in AI server architecture.
Global shipments for 800G and 1.6T modules are projected to reach 50 million and 28 million units, respectively, by 2027. Upstream suppliers are aggressively expanding capacity to meet this demand. Lumentum plans a 40% capacity increase over the coming quarters, while Tower Semi intends to triple its silicon photonics capacity by mid-2026.
Zhongji Innolight is actively developing LPO, NPO, and OCS technologies, leveraging its strengths in silicon photonics. NPO architecture is gaining favor over CPO among cloud service providers due to its open socket design, which reduces maintenance and replacement costs. The company has partnered with multiple key cloud providers and is expected to generate revenue from these new technologies starting in 2027.
BofA's 2025–2027 EPS forecasts stand at CNY 9.45, CNY 20.87, and CNY 29.84, respectively. Net profit is projected to grow at a 78% CAGR over this period, supported by margin expansion and operating leverage. The new CNY 780 target price is based on 30 times the 2H26–1H27 P/E ratio. BofA's 2026–2027 EPS estimates exceed market consensus by 9–20%.