Zhongji Xuchuang (03308) responds to market rumors: the customer did not cut orders on a large scale, Nomura maintains a “buy” rating

The Zhitong Finance App learned that on November 3, Zhongji Xuchuang (03308) released an investor relations activity record sheet to respond to various rumors that have recently disrupted the optical module sector, such as orders from overseas customers, lower demand, and lower target prices by foreign brokerage firms, and give the latest guidelines on demand and new technology developments from 2027 to 2028.

The company's management said that the vast majority of overseas customers have not placed requests or orders. Some customers have only made structural adjustments to their products, and demand for 1.6T from some customers has further increased compared to before. Therefore, even considering individual customer adjustments, the overall demand of the industry in 2027 is still within the previously forecast range, and demand from leading customers is still strong. The company revealed that the vast majority of orders in 2027 have covered the whole year. Data center customers are picking up goods at a normal pace, the overall supply of optical modules is still tight, and there are no abnormal inventory that cannot be delivered.

In response to the rumor that Nomura downgraded the company's rating and target price, Zhongji Asak claims that it has sought evidence from the brokerage firm. The other party stated that it is still maintaining the rating and that there are no cases of downgrading the rating or target price. The relevant information is false content spread by someone fraudulently using its name. According to reports, Nomura's latest report maintains Zhongji's “buy” rating. The target price for A-shares is 1,196 yuan, and the target price for Hong Kong stocks is 1,387 Hong Kong dollars.

Regarding demand in 2028, the company revealed that at least one key customer has given clear demand guidance and demand is strong. Other customer guidelines are still being collected, and the company is still optimistic about 2028 industry demand and prosperity. In terms of new technology, NPO expects demand to be released on a larger scale starting in the second half of 2027 and 2028. XPO presented the OFC plan in 2026, and demand is expected to be generated in 2027.

The management concluded that in 2027, the industry is still booming, and there have been no large-scale bill cuts as rumored in the market. It is hoped that investors will rationally view industry needs and the company's investment value.

The original text of Zhongji Xuchuang's investor event is as follows:

I. Management's opening remarks

At the request of investors, the relevant rumors that have emerged in today's market have been clarified.

1. Rumors about some overseas customers revising their demand or cutting orders: the vast majority of customers have not submitted requests or orders, some customers have made structural adjustments to the product, and demand for 1.6T from some customers has even increased compared to before. Therefore, even considering individual customer structural adjustments, the overall demand of the industry in 2027 is still within the original forecast, and demand from leading customers is still strong.

2. Rumor about a foreign brokerage firm downgraded the company's rating and target market value: The company has sought evidence from the foreign brokerage firm. The other party stated that it is still maintaining the company's rating and that there are no downgrades or target prices. The relevant information is false content spread by someone fraudulently using the brokerage firm's name.

3. Regarding demand for 2027-2028: The vast majority of the company's 2027 orders have covered the whole year. Regarding demand for 2028, at least one key customer has given clear demand guidance, and demand is strong. Guidance on requirements from other customers is still being collected. The company is still optimistic about the overall demand and prosperity of the industry in 2028.

II. Q&A

Q1: What is the current price situation of 800G and 1.6T products in 2027? A1: The annual decline in products is limited, and some product prices have not even been reduced.

Q2: From the fourth quarter of this year to the first quarter of next year, what is the pace for downstream customers to pick up goods? A2: Currently, data center customers are picking up goods at a normal pace, and there has been no slowdown. The overall supply of optical modules is still tight. Currently, there are no cases where abnormal inventory cannot be delivered after product production, and customers have not slowed down delivery speed.

Q3: Does the company have further arrangements for shareholder returns, repurchases and dividends? A3: The company implemented a repurchase of about 5 billion yuan in August-September 2026, and has proposed a bill to cancel all of the corresponding repurchased shares, which will be implemented after review and approval by the shareholders' meeting. Whether to continue with the repurchase will depend on subsequent circumstances. The company has established a long-term shareholder return mechanism, and the frequency of dividends has been increased from once a year to twice a year. As profitability increases, the company is confident of gradually increasing the dividend ratio.

Q4: Did the supply of core materials improve further in the fourth quarter compared to the third quarter? A4: Material supply is gradually improving. It is expected that some core materials will improve marginally in the next few quarters, and the company's shipment volume is also expected to increase sequentially for several consecutive quarters.

Q5: Market reports that major chip manufacturers have shown next-generation OIO technology solutions. What impact will it have on the company? A5: For new application scenarios, technology routes and product directions, the company has a targeted development layout and helps customers define product forms in related fields. Relevant work is currently underway.

Q6: What do you think of demand and capital expenditure trends in 2029? A6: Customers usually do not provide specific demand guidance two years in advance, but the company can clearly see the customer's technical route for the next two to three years, including technology trends and solutions in the fields of scale-up and scale-in. The company believes that future computing power, bandwidth and optical connectivity application scenarios will continue to improve, and more high-end optical interconnection solutions are needed. The company will actively assist customers in continuously developing product solutions. Industry customers continue to adopt optical interconnection solutions. The roadmap for future technology iterations is clear, and there is room for continuous growth.

Q7: What is the demand for NPOs in 2028? What are some aspects of the supply chain that need to be climbed? A7: NPO is expected to start in the second half of 2027, and more demand is expected to be released in 2028. At the beginning of the introduction of new products, the manufacturing yield of products needed to climb. In addition, new upstream materials such as higher power CW light sources and electric chips all had to go through yield climbing. This is a normal process for mass production of new products. Once relevant preparations are completed, customer demand is expected to be released on a larger scale in 2028.

Q8: Many manufacturers showed XPO at the OCP site, and some customers promoted the USFP agreement. Can you share relevant industry developments? A8: XPO is progressing relatively fast. The company already demonstrated the relevant plan at OFC in 2026, and will send samples to customers for testing in the future, and demand is expected to occur in 2027. Other new technology solutions still require some process to be scaled up.

Q9: When will the scale-in market generate clear demand? What is the breadth of customers that the company connects with? A9: Demand is still early. The company is discussing and helping to define products with some customers, which may correspond to the next few generations of ASIC chips. With the increase in bandwidth, it is expected that in-cabinet connections will gradually shift from copper connections to optical connections, but industry standards and technical standards are still unclear, and it will still take a long time to develop, improve, and deploy, so it is difficult to give a clear schedule.

Q10: Will tight materials cause a decline in net profit? A10: The supply of some materials is indeed tight, but this does not mean that the prices of all materials have risen. Gross margin depends on customer prices, product structure, and the company's ability to reduce costs within the company. Generally speaking, an increase in the share of high-end products helps maintain a competitive advantage. At the same time, the gross margin of silicon light products is superior to traditional solutions. As the proportion of silicon light increases, yield and production efficiency improves, and silicon chip capabilities increase, and the BOM structure of silicon light products is optimized, the company is expected to further reduce costs and maintain a stable or even increase gross margin.

Q11: Can you introduce the current needs of some specific customers? A11: Specific customer order situations involve trade secrets, and we are unable to respond individually. The company once again emphasized that the demand for the 800G and 1.6T industries in 2027 will still maintain the guidelines previously conveyed to the market, and the total demand has not changed, and it is hoped that investors will make rational judgments.

Q12: How many DSPs have been locked for next year's 1.6T? A12: The size of the DSP that the company has locked in is close to order demand, and also matches the share obtained from customers.

Q13: Gross margin has been high and stable in the last three quarters. What is the main reason why gross margin has remained at a good level as the product portfolio continues to change? A13: Mainly due to the increase in the proportion of high-end products shipped, the improvement of process and technology, the increase in the ratio of silicon light, and the increase in yield and production efficiency. The above factors together promote cost reduction and gross margin improvement. Among them, high-end products account for a particularly critical share.

Q14: When CPO achieves mass adoption in 2029-2030, what strategy will the company adopt to maintain its competitiveness and position in the industry?

A14: Various solutions will coexist for different application scenarios. In the scale-out scenario, pluggable solutions such as 3.2T and 1.6T will still exist, and high-density pluggable solutions such as XPO and USFP will also coexist; in the scale-up scenario, NPO has been widely recognized by customers, and the company is currently negotiating with many customers, and related requirements are expected to be released one after another in 2028-2030.

Q15: Facing the trend of CPO solutions, in addition to FAU and light source modules, what other aspects may the company participate in in the future? A15: Currently, in the CPO plan, the main components that the company can participate in are FAU and ELS external light sources, which are also the two types of products that the company can participate in the fastest at this stage.

III. Management Summary

From the company's perspective, demand in the industry is still good in 2027, and the boom is very high. There are no market rumors or worried cases where customers cut orders on a large scale. Investors are expected to rationally view the needs of the industry and the investment value of the company.

4. Conclusion of the meeting.