Zhongji Innolight profit jumps 228% on AI orders into 2028

Zhongji Innolight posted 2Q26 net profit of RMB7.917 billion, up 228% year on year and beating broker forecasts on strong 800G and 1.6T optical module shipments.

"The company continued actively shipping 800G and 1.6T products in the first half, with both recording quarter-on-quarter growth," BOCOM International said in a report, adding that visibility for major cloud-service-provider orders extends through 2027 while some customers have already provided guidance for 2028.

Revenue reached RMB22.281 billion in the quarter, up 174.6% from a year earlier and 14.3% sequentially. Gross margin widened 0.4 percentage points quarter on quarter to 46.4%, helped by the 1.6T ramp, higher silicon-photonics penetration and economies of scale. Net profit rose 38.1% from the first quarter, while the optical module business posted a 46.59% gross margin in the first half, up 6.63 points year on year.

The results reinforce the durability of AI infrastructure spending on optical interconnects. Changjiang Securities projects net profit of RMB31.834 billion, RMB57.207 billion and RMB82.569 billion for 2026 through 2028, implying growth of 195%, 80% and 44%. Hong Kong-listed shares closed at the intraday high of HKD1,203, up 19.6%, after Goldman Sachs initiated coverage with a Buy rating, with turnover reaching HKD4.479 billion.

BOCOM International trimmed its price target on the A-shares to RMB1,488, corresponding to 30 times 2027 earnings versus 32 times before, while keeping a Buy rating. The broker cited an overall valuation benchmark adjustment for optical module and technology stocks and lowered its gross margin forecasts for 2026 through 2028 to 47.0%, 48.5% and 48.3%, respectively, on rising upstream material prices.

The company is securing core material capacity through long-term agreements, prepayments and locked-in materials. Prepayments stood at about RMB950 million at the end of the second quarter, while long-term payables reached about RMB5.06 billion, up about RMB4.16 billion from the end of the first quarter. Inventory climbed 56.3% from the start of the year to RMB19.826 billion, and construction in progress rose 160.7% to RMB3.707 billion as capacity expands, with new capacity expected to be released mainly in 2027.

Zhongji Innolight is advancing next-generation products including 2.4T, 3.2T, NPO and XPO optical interconnects. NPO is in custom development and sampling with multiple cloud customers and chip makers, targeting initial deliveries in 2027, with related products expected to enter mass production in the second half of 2027 and expand shipments in 2028.

The earnings beat and order visibility into 2028 support the case that AI demand for high-speed optical modules remains durable even as brokers trim valuation multiples for the sector. Investors will watch whether rising material costs erode the gross margin trajectory and how quickly NPO and XPO products convert into volume.

This article is for informational purposes only and does not constitute investment advice.