Innolight delivered strong FY25 earnings, with revenue up 60% YoY to RMB38.2bn, in line with our estimate and Bloomberg consensus, while net profit rose 109% YoY to RMB10.8bn, 1.4% below our forecast but broadly in line with consensus. GPM improved sharply to 42.6% from 34.7% in FY24, driven by continued strength in high-speed optical module shipments and higher SiPh mix. Momentum accelerated further in 4Q25, with revenue up 102% YoY and 30% QoQ, while GPM expanded to 44.5% from 42.8% in 3Q25. We continue to view Innolight as a key domestic AI beneficiary, supported by improving supplychain readiness, clear leadership in pluggable modules, and further margin upside from deeper SiPh penetration. Maintain BUY, with TP unchanged at RMB707, based on 28x 2026E P/E.

Capacity expanded by 34% YoY in FY25, while shipments grew 45%, highlighting robust demand and solid ramp execution. Utilization improved from 74% in FY24 to 85% in FY25, while overseas sales accounted for 92% of revenue and 86% of total shipments. Looking ahead in FY26E, we expect 800G to remain the primary shipment driver, while 1.6T should increasingly emerge as the key revenue and GPM growth driver, supported by higher SiPh penetration and a more favorable mix. Mgmt. also indicated it has strengthened supply assurance for key materials through tighter agreements with core suppliers, higher strategic inventory, and broader vendor qualification, which we believe should improve delivery visibility and support growth into FY26–27.

Looking beyond the current ramp, we believe the Company’s product roadmap remains one of the strongest in the sector. Mgmt. sees 800G and 1.6T as the core demand pillars in FY26, with 1.6T likely to scale much faster as adoption broadens across CSPs and AI infrastructure customers. At the same time, the Company is positioning for the next phase of optical interconnect demand across scale-up and scale-cross networks, while continuing to advance its 3.2T roadmap across multiple technology paths, including EML-based and SiPh-based solutions. We expect 3.2T pluggable modules to begin to contribute revenue in FY28E.

Maintain BUY, with TP unchanged at RMB707, based on the same 28x 2026E P/E. We remain positive on the Company’s earnings outlook, driven by sustained 800G volume growth, rising 1.6T contribution, and further margin upside from deeper SiPh penetration. We lift our FY27E sales/net profit forecast by 8%/12% as the Company continues to scale capacity to meet robust demand on top of enhancing cost controls.