Innolight delivered yet another record-breaking quarter, with revenue rising +57%/+26% YoY/QoQ to RMB10.2bn. Gross margin expanded sharply by +9.2/+1.3ppt YoY/QoQ to 42.8%, driven by strong leverage from 800G transceiver shipments and broader uptake of SiPh-based solutions. Net profit surged +125% YoY/+30% QoQ to RMB3.1bn, also a record high, with net margin reaching 30.7% (vs. 29.7% in 2Q25 and 21.4% in 3Q24). Reiterate BUY, with TP raised to RMB591.

Strong 800G shipments and rising SiPh adoption underpin recordhigh GPM. GPM expansion was mainly driven by a richer product mix, led by sustained 800G volume growth and the ramp of 1.6T transceivers. The broader adoption of SiPh across both 800G and 1.6T product lines further lifted margins, given its inherently more favorable cost structure. Continued yield improvement and higher production efficiency also contributed to margin gains. Mgmt. expects 800G momentum to remain solid, while 1.6T SiPh transceivers are set to enter mass production in early-2026.

Raw material tightness manageable given market leadership. Mgmt. acknowledged ongoing tightness in key upstream optical components such as EML and CWL since 2024, but noted the company’s leading position in the global optical transceiver market enables it to secure sufficient material supply for production needs. The company has proactively locked in long-term capacity with major suppliers to mitigate potential disruptions. Mgmt. expects the current supply constraints to gradually ease by 1H26 as upstream manufacturers expand production capacity.

Hyperscalers’ expanding AI infrastructure capex reinforces near- to medium-term growth for the company. Major overseas hyperscalers continue to scale investment in AI infrastructure, providing a strong demand tailwind for Innolight. Google recently guided CY25E capex of US$91–93bn (vs. US$85bn previously), while Meta raised its CY25E target to US$70- 72bn. Microsoft also reiterated that capex will continue to grow despite earlier expectations of moderation. This sustained hyperscaler spending momentum will further support the company’s sales in the coming quarters.

Reiterate BUY, with TP raised to RMB591, based on 28x 2026E P/E, 1SD above 5-year historical avg. P/E, justified by Innolight’s leadership in AI optical transceivers market during this strong investment cycle. Our NP forecast for 2026E is revised up by 52%, reflecting higher revenue expectations due to increasing capex. Key risks include lower-thanexpected AI capex, geopolitical/tariff uncertainties, supply chain disruptions and intensified competition, etc.