Rating: Neutral | Target price: HKD 102–135 (base-case fair value range) | Current price: HKD 124.0 (close, 2026-10-16) | Margin of safety: approx. -18% (base-case fair value floor below current price, no positive margin of safety) | Time horizon: 6–12 months
Currency and basis notes: Financial figures are in RMB; all valuations are converted at HKD 1 = RMB 0.85129 (2026-10-19). Total share capital 827,905,108 shares (H shares 421.57 million + A shares 406.34 million, per the Monthly Return of Movements in Securities dated 2026-10-06), corresponding to a market cap of HKD 102.66 billion ≈ RMB 87.39 billion.
AI data centers have shifted the global optical fiber industry from the telecom cycle of "connecting people" to a structural boom of "connecting compute": In 2026H1, YOFC posted revenue of RMB 9.809 billion (+53.6%), gross margin jumped from 28.3% to 53.4%, and non-IFRS (recurring) net profit was RMB 2.449 billion (+1680%). Carriers' 2026-27 bulk procurement prices more than doubled versus 2025, giving visibility on the boom through 2027. But the share price has already completed a full "narrative pricing—de-bubbling" round: within 52 weeks it rose from HKD 31.48 to HKD 287.6, then retraced 57% to HKD 124. This report's three scenarios (bear 25% / base 50% / bull 25%) imply a probability-weighted fair value of about HKD 122, roughly 1% above the current price, sitting in the upper-middle of the base-case range (HKD 102–135) — the base case of the AI inflection has largely been paid for at the current price; excess returns require the bull case (supply gap extending to 2028+, hollow-core fiber ramping) to materialize; the main threat is the resonance of new preform capacity releases with decelerating AI capex in 2027H2–2028. A good company at a fair price: do not chase; re-evaluate below HKD 102; above HKD 135 treat as base-case fulfillment.
Key evidence:
Volume and price both rose in 2026H1 (revenue +53.6%), and the 2026-27 procurement contract price center doubled over two years — meaning a large share of 2027 revenue is already locked in via long-term contracts, harder evidence of the boom than spot prices. Caveat: CRU supply-demand gap data cited by media (gap rates of 4.6%/10% for 2026/2027) vary across versions (others cite 15%, 180 million fiber-km, etc.); this report uses it only as directional reference, not as a quantitative anchor.
Key evidence:
YOFC is the only company worldwide mastering all three preform processes — PCVD/OVD/VAD. Integration puts it in the top tier for gross profit retention during price upcycles; positioning in premium products is real (G.657.A2 spot at ~RMB 240/fiber-km, polarization-maintaining fiber entering the AI compute supply chain, hollow-core fiber's 0.032dB/km world-record attenuation). But it must be noted: the 63.11% segment gross margin is mainly price elasticity from this round of price increases, not a structural leap — if spot prices fall 40–50% from their peak, the same segment would exhibit symmetric negative elasticity (the core transmission channel in this report's bear case); maximum elasticity does not equal optimal risk-adjusted returns; peer Hengtong also posted strong 2026H1 net profit growth with a more diversified business and potentially greater downside resilience.
Key evidence:
Back-solving with a 13x exit P/E, the current price implies sustainable 2028 recurring net profit of ~RMB 6.7 billion (≈ slight growth over the expected 2026 platform of RMB 6.25 billion); 2026E/2027E recurring P/E ~14.0x/12.7x. But these "cheap" multiples rest on the assumption that 2026H2 quarterly recurring profit sustains ~95% of the Q2 peak (implying H2 quarterly run-rate of ~RMB 1.90 billion vs Q2's RMB 1.988 billion) — if Q3 gross margin falls below 50%, all forward multiples would be revised up passively. Probability-weighted fair value across three scenarios is ~HKD 122 (-1% vs current price); raising the bear-case weight to 30% yields ~HKD 119 (+4% deviation), so the conclusion is insensitive to weights. The H-share discount of ~69% to A shares stems from long-term investor structure and may widen further in stress scenarios; it is not used as a basis for margin of safety.
Key evidence:
The preform capacity expansion cycle is 18–24 months; capacity started in 2026 will land concentrated in 2027H2–2028. If overlaid with North American cloud providers' capex growth downshift in 2027 (consensus growth slowing from ~84% in 2026 to ~22%; any downward revision would marginally price into spot), and with G.652.D spot falling 40–50% from its peak of RMB 94–97/fiber-km, this report estimates 2028E recurring profit could collapse to RMB 2.8–3.2 billion. We assign this double-hit scenario a probability of ~25–30%. Key buffers versus the last cycle: 2027 contract prices are locked at RMB 102–136/fiber-km, so the starting point of any decline is far above the last trough (2025 average procurement price RMB 47.7); Corning's expansion is largely pre-sold under long-term contracts, and only about half of Hengtong's raise goes to optical communications — the magnitude of the supply shock may be smaller than headline numbers suggest.
Key evidence:
2026H1 OCF/attributable net profit was 0.62 (0.75 on a recurring basis); related-party receivables and inventory (+41.8%, attributed by the company to stocking for submarine cable orders) expanded with the boom, and minority interests siphoned off 8.2% of profit; the low-price December 2025 placement plus volatile foreign holdings constitute structural fragility in the shareholder register. Offsetting signals are equally real: OCF +117% YoY and improving, contract liabilities up another 17% from the start of the year, BlackRock having rebuilt its long position to 6.29% by 10-12, the H-share award plan (capped at 10 million shares, via secondary-market buybacks) not yet launched, and the company's first-ever interim dividend declared before 11-10 (RMB 1.06 per share, ~1.0% half-year yield). These items go on the monitoring list; none alone is enough to overturn the boom thesis.
| Metric (RMB) | FY2023 | FY2024 | FY2025 | 2026H1 (latest period) |
|---|---|---|---|---|
| Revenue (RMB 100M) | 133.53 | 121.97 | 142.52 | 98.09 (+53.6%) |
| Attributable net profit (RMB 100M) | 12.97 | 6.76 | 8.14 | 29.25 (+889.0%) |
| Recurring attributable net profit (RMB 100M) | 7.30 | 3.67 | 5.16 | 24.49 (+1680%) |
| Gross margin | 24.5% | 27.3% | 30.7% | 53.4% (+25.1pp) |
| Attributable net margin | 9.7% | 5.5% | 5.7% | 29.8% |
| Operating cash flow (RMB 100M) | 15.14 | 17.83 | 36.53 | 18.26 (+116.8%) |
| Free cash flow (RMB 100M) | -6.96 | 4.33 | 21.09 | 11.55 |
| Cash + trading financial assets (RMB 100M, period end) | 49.44 | 47.30 | 74.47 | 76.83 |
| Interest-bearing debt (bank loans basis, RMB 100M, period end) | 78.40 | 93.01 | 84.18 | 77.57 (~85.25 all-in) |
| Debt-to-asset ratio | — | — | — | ~48% (estimated) |
| Net debt/EBITDA | — | — | ~0.42x (estimated) | Net interest-bearing debt ~RMB 840M |
Reasons for metric changes (items with YoY ≥ ±20%, per company disclosures): ① 2026H1 revenue +53.6% — company attributes it to "accelerated AI compute center construction driving the industry into an upcycle, with fast YoY growth in sales volumes and average prices of key products"; ② attributable profit +889% — profit alert attributes it to compute data center demand growth, improving supply-demand structure, core customer expansion, and product mix optimization; the RMB 475 million gap between attributable and recurring profit mainly comprises fair-value gains of RMB 294 million and government grants, etc.; ③ FY2024 attributable profit -47.9% — global telecom industry downcycle, volume and price pressure on standard single-mode fiber, plus investment losses and fair-value losses; ④ FY2025 OCF +104.8% — earnings growth and improved working-capital efficiency; ⑤ inventory +41.8% vs start of year — attributed to order backlog at subsidiary YOFC (Jiangsu) Marine & Submarine Cable; related-party receivables +141.8% not separately explained by the company (on the monitoring list); ⑥ minority interest swung from -RMB 95 million in FY2024 to RMB 262 million in 2026H1 — listed subsidiary Broadex Technologies et al. returning to profit and growing.
Revenue RMB 9.809 billion, +53.6% YoY: optical transmission products segment RMB 6.126 billion (+59.2%), optical interconnect components ~RMB 2.24 billion (+55.0%), others RMB 1.44 billion (+32.1%); overseas revenue RMB 4.146 billion (+53.6%, 42.3% of total). Earnings show extreme quarterly concentration: Q1 recurring profit ~RMB 461 million, Q2 ~RMB 1.988 billion (Q2 gross margin ~60.5% vs Q1 ~41.5%), corresponding to the transmission peak after fiber spot prices surged to RMB 94.2/fiber-km (tax-inclusive, media-cited) in March — Q2 is the overlapping point of "volume-price double rise + spot peak"; its sustainability is the key watch item for the Q3 report. Contract liabilities rose from RMB 632 million at the start of the year to RMB 741 million, and unsettled capital commitments from RMB 1.835 billion to RMB 2.559 billion — both order and capex leading indicators point up. Judging "beat or miss" lacks a reliable consensus database: available external reference points are UBS's upwardly revised net profit forecast (September 2026, above this report's range ceiling) and Morgan Stanley's June comment that "the share price largely reflects 2026-27 earnings expectations" — this report takes a middle-to-conservative stance (full-year attributable profit RMB 6.0–7.5 billion).
Business model: Asset-heavy vertical integration across "preform—fiber—cable," extended into optical interconnect components (Changxin Bochuang: optical modules/AEC), industrial lasers, submarine cables, quartz materials, and other diversification (2025 diversified revenue ~RMB 5.9 billion, exceeding 40% of total for the first time). Revenue is project/order-based product sales with no recurring subscriptions; historically weak bargaining power versus downstream carriers, but the supply-demand reversal since 4Q25 plus premium cloud orders have significantly strengthened pricing pass-through — however, pricing power depends on the supply-demand mismatch window; the 2023-24 price war proved traditional products carry no structural pricing power.
Cash content of earnings: OCF/attributable net profit FY2023–2026H1: 1.17 → 2.64 → 4.49 → 0.62; FCF/attributable net profit: -0.54 → 0.64 → 2.59 → 0.39. Negative FY2023 FCF reflects the capex peak (RMB 2.21 billion); FY2025 cash conversion was excellent; the drop to 0.62 in 2026H1 reflects working-capital absorption from receivables (+RMB 1.32 billion) and inventory (+RMB 1.32 billion) (~RMB 0.64 advanced per incremental RMB 1 of revenue — still a healthy expansion profile); 0.75 on a recurring basis — below the 0.8/0.5 warning thresholds, but the trend needs re-examination in the annual report. Recurring earnings test: of 2026H1 attributable profit of RMB 2.925 billion, RMB 475 million came from non-recurring items including fair-value changes (RMB 294 million); the RMB 2.449 billion recurring figure is the core earnings number; FY2024 net profit was propped up by deferred tax (effective tax rate ~2.0%) — the RMB 367 million recurring figure better reflects the true trough.
Return on capital: ROIC FY2025 ~3.6% (still below the 8% warning threshold even after trough normalization); annualized 2026H1 jumped to ~22% — the post-surge high ROIC still needs full-year and 2027 confirmation; this report does not count it as a proven moat return rate.
Capex quality: Capex/depreciation FY2024–2026H1: 1.54 → 1.29 → 1.12; disclosed uses include overseas localized capacity, diversification projects, and optimization of domestic preform/fiber capacity; no maintenance/growth split disclosed, so precise distinction is impossible, but unsettled capital commitments of RMB 2.559 billion (+39% vs start of year) suggest continued concentrated investment into 2027 — this round of capex is occurring at peak prices; the classic pro-cyclical capacity-expansion risk warrants caution.
Red flags: ① Minority interests at 19.7% of total equity, siphoning 8.2% of 2026H1 profit, with profit concentrating in non-wholly-owned subsidiaries (Broadex Technologies, etc.); ② the December 2025 placement of 70 million H shares at HKD 32.26/share (14.9% discount), expanding share capital by 8.46% — a track record of dilutive financing at low prices; ③ surging related-party receivables (see E4).
Credibility: pragmatic-to-conservative, good delivery. The 2026-07-14 profit alert range (attributable RMB 2.4–3.0 billion) was delivered in the upper-middle (RMB 2.925 billion); the FY2024 annual report gave no quantitative guidance but cited CRU's "global demand returning to growth in 2025," and FY2025 revenue +16.8% outgrew the industry; under the hollow-core fiber target of "50+ commercial and pilot projects," 13 have landed with over 10,000 fiber-km cumulatively delivered — verifiable progress though revenue not quantitatively disclosed. Verdict: pragmatic.
Shareholder friendliness: neutral-to-positive. Payout ratio stable at 30% for years (FY2023 RMB 0.514 → FY2025 RMB 0.295 → 2026 first interim dividend RMB 1.06, all ~30% payout); in 2025, 6 million A shares repurchased for employee ownership; the 2026 H-share award plan implemented via secondary-market buybacks (no new issuance, no dilution). Deduction: the December 2025 low-price placement of 70 million H shares (net proceeds HKD 2.229 billion, 80% toward overseas business) — industrially justifiable, but the pricing and timing imposed dilution on existing holders; the share price later peaked at 8.9x the placement price. Verdict: neutral.
Risk signals: Board reshuffle on 2026-07-30 (Ma Jie appointed Chairman), alongside a raised cap of RMB 650 million for ordinary related-party transactions with YOFC Shanghai/Trulight Fiber/the Prysmian Group (below 5% of net assets); during the extreme share-price volatility the company conducted a self-inspection and verified with controlling shareholder China Huaxin Post & Telecom, confirming no undisclosed matters, and no director/supervisor/senior manager traded shares during the volatile period.
| Segment (2026H1) | Revenue Share | Gross Margin | YoY | Business Logic in One Sentence |
|---|---|---|---|---|
| Optical transmission products (preform/fiber/cable, incl. AI new-type fiber) | 62.5% | 63.11% | +59.2% | Integrated leader as the main profit engine in a price-hike cycle |
| Optical interconnect components (optical modules/AEC etc., Changxin Bouchard) | 22.8% | 48.97% | +55.0% | Second curve in datacom optical interconnect; 50G PON in volume production, 1.6T under selection |
| Others (engineering/laser/submarine cable/quartz/semiconductor) | 14.7% | ~27.9% | +32.1% | Low-margin but improving fast; RMB 504 million submarine cable win opens upside |
| Of which: overseas customers | 42.3% | Not disclosed | +53.6% | Localization across 9 bases in 7 countries hedges trade barriers |
Profit powerhouse: the optical transmission segment (62.5% × 63.11%, contributing roughly 70% of gross profit) — the largest segment by both revenue and profit, but note its gross margin carries the greatest exposure to this round of price hikes (corresponding to the two-way elasticity in C2). Gross margin structure gap: the highest (optical transmission 63.11%) vs. the lowest (others ~27.9%) differ by ~35pp — the process moats of preform-fiber-cable integration and specialty fiber vs. the project-based, competitive businesses of engineering services/laser equipment mean entirely different pricing power; compared with "buy-fiber-make-cable" long-tail producers without preform capacity, integrated players' cost-structure advantage is further amplified in this price-hike cycle (China Mobile's 2026 tender incorporates supply stability into evaluation and expands winners to 6–18 bidders — effectively pricing in the delivery risk of non-preform producers). Historical trajectory: optical transmission gross margin FY2023 ~30% → FY2024 ~33% → FY2025 ~37.3% → 2026H1 63.11%.
Accounting red flags: ① Receivables from related parties rose +141.8% in half a year (RMB 534 million → 1,293 million), far exceeding total receivables growth (+22.2%); the bad-debt provision rate on related-party receivables is only 0.23%, while the related-party transaction cap was raised by RMB 650 million in the same period — severity medium (med); ② FY2024 effective tax rate ~2.0% (income tax expense RMB 12 million vs. pre-tax profit RMB 593 million); recognition of deferred tax assets supported that year's net profit — med; ③ Fair-value change gains of +RMB 294 million in 2026H1 (vs. -RMB 4 million in the prior-year period), underlying holdings not disclosed — low, already excluded from recurring (deducted) figures.
Cross-period consistency: ① OCF/attributable net profit plunged from 4.49 in FY2025 to 0.62 in 2026H1 — the company explained OCF growth (business growth + efficiency gains) but did not explain the working-capital absorption from inventory +41.8% and related-party receivables +141.8%; "unexplained by company"; ② Gross margin triple-jump 24.5% → 27.3% → 30.7% → 53.4% — the company's attribution chain (production efficiency → product mix → volume-price rises + AI computing construction) is consistent with the industry backdrop; "consistent."
On balance, no systematic accounting-manipulation traces were found in the financials, but related-party receivables and the tax rate both require annual-report-level follow-up verification; the main discount to 2026H1 earnings quality is the RMB 475 million of non-recurring items (already excluded in the recurring basis).
Closing price HKD 124.0 (2026-10-16); market cap HKD 102.66 billion ≈ RMB 87.39 billion. PE-TTM 25.4x (rolling attributable profit RMB 3.443 billion) / 30.9x on recurring basis; 2026E recurring 14.0x, 2027E recurring 12.7x (this report's forecast midpoints RMB 6.25/6.9 billion); PB 5.34x (3/5/10-year percentiles 77%/86%/93%; 5-year median only 0.87x). Percentile disclaimer: TTM earnings swung multiple-fold within one year (2026H1 attributable profit +889%), so PE and PB percentiles are mechanically distorted and are reference-only, not a headline cheap/expensive signal — this name sits at a structural demand inflection; the primary valuation anchor is forward PE/rollout scenarios, with historical percentiles serving only as floor coordinates for downside scenarios. A/H comparison: estimated A-share price ~RMB 340 (≈HKD 399), a premium of ~222% (estimated; time-point gap between the two markets ≤1 trading day; the A-shares saw abnormal volatility twice in August, and a foreign bank rates them Reduce) — the A-share side carries a clear sentiment premium; the H-share is the value-anchoring side. Liquidity: single-day turnover of HKD 2.13 billion on 10-16 (~2.1% of market cap); no low-liquidity risk.
(FiberHome's PE-TTM of ~119.7x is distorted by loss-making earnings and excluded from the chart; YOFC's PB of 5.34x is above Hengtong 3.68x/ZTT 2.49x/FiberHome 2.33x and should be viewed alongside 2026E ROE of 35–40%.)
Back-solving at a 13x exit P/E, the current price requires sustainable recurring profit of ~RMB 6.7 billion by 2028 — i.e., the 2026 earnings platform of RMB 6.25 billion merely carries through to 2028 with minimal growth. Two-way test: what holds up — the 2027 supply-demand gap (CRU demand 889 million vs. supply 807 million fiber-km), tender contract prices locked at RMB 102–136 per fiber-km, datacom demand share rising to 30%, overseas capacity ramp — supports 2027E recurring profit of RMB 6.2–7.6 billion ≥ the implied value; Corning Optical Communications' sustained acceleration (FY2025 +35%, 2026Q2 +32%) provides external demand-side corroboration. What doesn't hold up — there is no third-party gap data for 2028; given the 18–24 month preform capacity-expansion cycle, capacity started in 2026 lands precisely in 2027H2–2028; the current price treats "2028 price resilience" as a default assumption without data backing. In one sentence: the current price requires the company to smoothly carry its 2026 peak platform through to 2028; the reality is that 2027 has contract support while 2028 is an unresolved supply game.
| Scenario | Probability | Fair Range (HKD) | vs. Current Price | Decisive Moves |
|---|---|---|---|---|
| Bear | 25% | 40–55 (midpoint 47.5) | -62% | Concentrated release of new preform capacity 2027H2–2028 + AI capex slowdown: spot prices fall 40–50% from peak, 2028E recurring profit collapses to RMB 2.8–3.2 billion × 10–12x |
| Base | 50% | 102–135 | -18% to +9% | 2026 revenue RMB 21.3 billion (+49%) → 2027 RMB 26.0 billion (+22%, gap + contract reset) → 2028 price -20~25% offset by volume growth/mix upgrade, 2028E recurring RMB 6.0–6.8 billion × 12–14x (exit anchor 13x: own 3-year median 13.9x + peer TTM 25.7–29.6x + prior bear-market trough 4.5x as floor; sensitivity and anchoring rationale below) |
| Bull | 25% | 181–229 (midpoint 205) | +65% | Gap persists into 2028+, hollow-core/PM fiber ramp, overseas share above 50%: 2028E recurring RMB 8.5–9.5 billion × 15–17x (still below peers' current TTM, as 2028 is already late-cycle) |
Probability-weighted fair value ~HKD 122 (-1% vs. current price); odds roughly symmetric (bear -62% / bull +65%), current price in the middle — this is a "fairly priced" rather than "undervalued" distribution. Sensitivity: bear weight raised to 30% → weighted fair value ~HKD 119; exit multiple at 10x/15x → implied 2028 recurring profit at current price becomes RMB 8.7/5.8 billion (vs. RMB 6.7 billion at 13x) — the conclusion that "the current price implies only modest growth" is sensitive to multiple choice; the 13x anchor rationale (own 3-year median + peer midpoint) has been kept as independent as possible from the company's current trading multiple, but the applicability of cyclical stocks' historical midpoints is itself an assumption.
Base-case rollout modeling (inflection basis, not extrapolation of current earnings): 2026 revenue RMB 21.3 billion (+49%, volume +15~20% × price: elevated spot + contract reset) → 2027 RMB 26.0 billion (+22%, CRU demand +17%, gap widening to 10%, China Telecom's 2027 tender price already showing a RMB 136/fiber-km anchor) → exit year 2028: price falls 20–25% from peak but is offset by datacom share 30%+, overseas 45%+, and high-end mix upgrade; recurring profit RMB 6.0–6.8 billion, 13x exit → discounted to a fair range of HKD 102–135. Own forecasts vs. external coordinates: this report FY2026 attributable profit RMB 6.0–7.5 billion / FY2027 RMB 6.7–8.1 billion; UBS's upgraded forecasts sit above this report's upper bound (more bullish), while Morgan Stanley said in June the share price already reflects 2026–27 earnings — this report takes a moderately conservative middle ground (assuming Q2 is the annual single-quarter peak, easing quarter by quarter).
Separate quality from price: quality improvement is real (gross margin 53.4%, first interim dividend, global share leadership, overseas 42%), but the price has already paid for the base case (weighted fair value 122 vs. current price 124; base-case floor of 102 is -18% vs. current, i.e., no positive margin of safety). The essence of this report's divergence from sell-side consensus (average TP HKD 246) is the pricing of the 2028 supply game: if UBS's "capacity-overhang fears are overblown" holds, the current price is meaningfully cheap; if Morgan Stanley's "2027–28 price retreat" materializes, the bear case still has room for a deep drawdown. Until current data can adjudicate between the two, neutral is the most honest stance.
Global optical fiber and cable demand metrics (CRU basis, fiber-km): 2024 global cable demand 557 million fiber-km (+3.9%) → 2025 global fiber output 652 million fiber-km (+13.76%, the highest growth rate in recent years) → 2026E demand 760 million (+28%), 2027E 889 million (+17%, Huatai estimate on CRU basis). No authoritative public figure exists in value terms (aggregate institutional estimates ~USD 13–19 billion for 2025, wide definitional differences; to be verified; reference point: Corning Optical Communications alone posted FY2025 revenue of ~USD 6.3 billion). China: 2025 China Mobile's ordinary optical cable tender alone totaled 98.84 million fiber-km, ~RMB 4.7 billion (ex-tax); Chinese producers account for ~60% of global fiber supply.
Quantified chain of the structural demand inflection (driver × unit consumption × penetration × share, each link numerically supported):
Verdict: a structural industry-wide re-rating inflection, not an ordinary boom cycle — the demand core has shifted from "connecting people" to "connecting compute"; the step-change in unit consumption plus a 6-fold penetration gain relegates legacy cycle amplitude to secondary status relative to the increment; the valuation anchor switches to a growth framework (forward PE/rollout scenarios), with mid-cycle normalization serving only as the downside floor.
Upstream: high-purity silicon tetrachloride/quartz sleeves/specialty gases and deposition-drawing equipment — bargaining power over commodity inputs rests with leading producers; the process moat and margin concentration lie in the optical preform (PCVD/OVD/VAD know-how-intensive, 18–24 month expansion cycle). Midstream fiber-drawing and cabling: integrated players (YOFC/Hengtong/ZTT/FiberHome) retain significantly higher margins than "buy-fiber-make-cable" long-tail producers — in this price-hike round the latter's costs are being squeezed (China Mobile's 2026 tender moved to 6–18 winners and incorporates supply stability into evaluation, effectively pricing a shake-out of non-preform producers). Downstream domestically, the three carriers' tenders are the largest single buyers (historically strong bargaining power; since 2026's supply-demand reversal, producers have collectively bid at the cap for the first time); incremental customers are cloud/AI data center direct procurement (the Meta–Corning paradigm establishes multi-year volume and price locks). YOFC occupies a fully integrated position across the chain and is a globally scarce company independently mastering all three preform processes, with strong bargaining power upstream and currently at its historically strongest window of pricing power downstream.
Demand side: AI DC (+76% in 2025) + drone specialty fiber + US BEAD broadband subsidy ramp vs. domestic carrier volume contraction (China Mobile ordinary cable tenders: 108.2 million fiber-km in 2023 → 98.84 million in 2025 → 69.22 million in 2026, -30%; China Mobile 2026 total capex -9.5%, telecom network spending -20.3%). Supply side: 2025 global output 652 million fiber-km (+13.8%); Huatai estimates 2026/2027 supply at 725/807 million fiber-km, below demand (gaps of ~4.6%/10% — media citations vary in magnitude but agree in direction); leading preform producers at full capacity, orders booked into early 2027, lead times stretched from weeks to months, and up to a year for North American cable. Prices: China G.652.D spot rose from ~RMB 17.5/fiber-km in May 2025 to ~RMB 94.2 in March 2026 (incl. tax, +438%) and ~RMB 96.8 in August (media citation, basis to be verified); US/EU/India up +48%/+128%/+214% respectively vs. January 2026; G.657.A2 ~RMB 240 (~2.5x standard fiber, up ~10x in a year). Concentration: globally Corning 19.5%/YOFC 14.6%, with Hengtong, ZTT, and FiberHome at 3rd–5th; China Mobile's 2025 tender CR4=60% (ZTT 19.36%, Hengtong 15.48%, YOFC 13.55%, FiberHome 11.61%); in 2026 YOFC led with 10.07% but CR4 fell to 38.81% — amid shrinking volume and rising prices, "share cedes to earnings quality." Entry barriers: preform process know-how (the hardest) + tender qualifications + scale capital + overseas localization under trade barriers + specialty fiber technology accumulation. Substitution threats: in-rack DAC/AAC copper, CPO reducing pluggable stages (though total optical interconnect rises), hollow-core displacing solid-core at the high end (YOFC itself is a leader).
Cycle position: 2015–2018 4G/FTTH boom peak → 2019–2024 tender price-war shakeout (G.652.D fell ~70% from peak, Mobile suspended tenders twice) → 2024 weak recovery → price jump from 2025Q4, full shortage in 2026 — currently in the early-to-mid stage of "volume-price resonance," with the essential difference from the last cycle being the switch in the demand core. Leading indicators: monthly spot price quotes (a break below RMB 70 as first confirmation of downturn), tender volume and price, order lead times, preform utilization and construction-in-progress-to-fixed-asset conversion, North American cloud capex guidance. Regulation and policy: domestic "East Data West Computing"/national integrated computing network/10G-PON pilot programs open up DCI and high-end product demand; under the "anti-involution" policy thrust, the 2026 tenders' "no published price cap" suppresses vicious price wars; overseas, US BEAD subsidies ramp with domestic-content requirements (BABA) and the EU's anti-dumping/countervailing duties on Chinese cable — both forcing overseas plant construction, and YOFC's Poland/Indonesia bases happen to be the favored structure; the US S.5548 bill (proposed Sep 2026) targets optical transceivers and does not name fiber and cable — a sector-sentiment variable rather than a direct hit.
| Company | 2025 Revenue | Growth | Gross Margin | ROE | Position/Differentiation |
|---|---|---|---|---|---|
| YOFC (this coverage) | RMB 14.25 billion | +16.8% (2026H1 +53.6%) | 30.7% (2026H1 53.4%) | FY2025 ~5%, 2026E 35–40% | Highest preform-fiber-cable integration purity, greatest earnings elasticity |
| Hengtong Optic-Electric | RMB 66.86 billion | +11.45% | 12.46% | 8.96% | Largest by scale; submarine cable + energy diversification, low optical communications purity |
| ZTT | RMB 52.50 billion | +9.24% (2026H1 +31.1%) | 13.88% (optical comms segment 22.58%) | Not obtained | Oligopoly in submarine cable; optical communications only ~14% of revenue |
| FiberHome | RMB 24.92 billion | -12.72% | Not obtained | 3.14% | Equipment-vendor positioning; 2025 revenue and profit both declined |
| Corning (Optical Communications segment) | ~USD 6.3 billion | +35% (enterprise datacom +61%) | Not obtained | Not obtained | Global share leader, tied to North American clouds; North American exposure complements YOFC |
Absolute global leader in preform-fiber-cable: #1 company-claimed share in all three product categories for nine consecutive years (cited from CRU); global fiber share ~14.6%, ranking second (CNBC basis; the two bases are presented side by side for verification) — note the discrepancy between the two bases: CNBC's vendor-share statistics and CRU's product-level statistics use different methodologies; the former puts Corning first, the latter YOFC first. Moat: the only full coverage of all three preform processes + integration cost advantage + a technology-generation lead in specialty fiber (hollow-core 0.032dB/km global record vs. Microsoft's route at 0.091) + 9 bases across 7 countries overseas. Share trend: core base stable, profit share rising (domestic tender share 13.55%→10.07% cedes volume for earnings quality; overseas revenue +47.8%).
Stance: Neutral (confidence 0.55, 6–12 months). Distribution: Bear HKD 40–55 / Base 102–135 / Bull 181–229, with weighted fair value at approximately HKD 122 and the current price of HKD 124 sitting in the upper-middle of the base range — the industry upcycle and leading market position are real, but the price already reflects this; directional resolution depends on the 2028 supply battle, an event 12 months away. Strategy implications: do not chase at current levels; reassess entry value below HKD 102 (base-case floor); treat levels above HKD 135 (base-case ceiling) as exhausted margin of safety and take profits/reduce positions.
Key monitoring items (next 6–12 months): ① Q3 gross margin (late October 2026) — ≥50% confirms the upcycle, <45% falsifies it; ② G.652.D spot monthly quotes — a break below RMB 70 is the first confirmation of a downcycle, while sustaining above RMB 85 in 2027H1 validates "tightness continuing"; ③ 2027 hyperscaler capex guidance (February 2027 earnings season); ④ pace of new optical preform capacity additions (Corning/Hengtong/FiberHome construction-to-fixed-asset conversions) — if mass-market fiber capacity comes online at scale before 2027H1, the bear scenario gains weight; ⑤ hollow-core fiber orders and revenue share (currently <2%, reaching 5% by end-2027 is the option-realization threshold); ⑥ OCF/net profit, related-party receivables balance, and inventory impairment provisions in the 2026 annual report.
Risk disclosure: The biggest uncertainty in this report is the timing and magnitude of 2028 supply release and an AI capex slowdown (which determines whether valuation moves toward HKD 47 or 205); second are quarterly earnings volatility (the Q2 peak plateau assumption), related-party receivables and working capital quality, and the impact of the H-share holder structure (placement profit-taking + volatile foreign holdings) on liquidity. All of these have observable thresholds set in the monitoring list.
Report date: 2026-10-19; price anchor: 2026-10-16 close of HKD 124.0 (frozen); the views in this report are based on public materials and proprietary analysis and do not constitute investment advice.