Innolight delivered a standout 1Q26, with revenue jumping 192% YoY / 47.3% QoQ to RMB19.5bn (vs. Bloomberg consensus of RMB15.4bn), and net profit surging 262% YoY / 56.5% QoQ to RMB5.7bn (vs. RMB4.4bn consensus), both marking new quarterly highs. During the period, GPM expanded further to 46.1% (vs. 44.5% in 4Q25), primarily due to improving mix and rising SiPho penetration. Mgmt. framed the strong quarter not as a one-off outperformance but as a reflection of sustained demand strength and improved execution, with robust capacity ramp-up, including Thailand, and resilient raw material procurement supporting shipment in a tight S/D backdrop. Maintain BUY with TP adjusted to RMB1,080 on 28x rollover 2027E P/E (prev. 28x 2026E P/E).

800G and 1.6T ramped up in tandem, with rising SiPho mix further lifting margin. Revenue strength was driven by concurrent ramp-up in both 800G and 1.6T products, indicating that growth is broadening across the company’s high-end optical portfolio rather than being tied to a single product inflection. Mgmt. highlighted meaningful contribution from both 800G and 1.6T shipments in 1Q26, with the richer product mix continuing to drive margin higher. Within 1.6T, SiPho is expected to account for more than half of shipments this year, reinforcing our view that rising SiPho penetration should remain an important structural support to margin.

NPO is the earlier catalyst, while XPO provides broader deployment flexibility. Mgmt. indicated NPO has already received explicit customer demand indications and could enter volume production in 2027, with the use case tied primarily to scale-up architectures. XPO, by contrast, is still in active customer promotion, but was positioned across both scale-up and scale-out scenarios, with transmission reach of roughly 100m to 2km, implying broader deployment potential once commercialization visibility improves.

Maintain BUY with TP revised to RMB1,080 on rollover 28x 2027E P/E, supported by an order backlog that now stretches through 2026 and into 2027 (and even beyond). In our view, what stood out this quarter was not only the magnitude of the beat, but the quality of execution behind it: Capacity expansion landed on time, supply-chain preparation remained effective despite tight upstream conditions, while product mix was moving structurally upward. We believe this supports a more durable earnings profile and strengthens confidence that Innolight can capture incremental upside from future architectural shifts.