China Supply Expansion Growth to Rapidly Eliminate Shortage; D/G to HOLD

Research evidence excerpt

China Supply Expansion Growth to Rapidly Eliminate Shortage; D/G to HOLD

2024. We est datacom will be 43% of demand

in 2026 rising to 55% in 2027, implying 131%/65% YoY growth. Oversupply in China drove

YOFC's OF ASP down to Rmb31/fkm in 2020. We est it gradually recovered to Rmb44 in 2025.

Our industry checks suggest ASP has risen above Rmb100 in 2Q26, and some new DC-centric

OF products (eg, G657A1/A2) could go above Rmb150/fkm even in LTAs. Since the unit cost of

production has not changed materially, we est YOFC's GM on its preform+OF segment will rise .Source: Company data, Jefferies

from 48% in 2025 to 86% in 2026. Including low-margin cable products, YOFC's blended GM

for its OF business is forecast to rise from 31% in 2025 to 53%. Given high operating leverage,

we forecast a 10x YoY rise in EPS this year to Rmb11.44, implying 11x 2026E PE currently.

Significant industry capacity expansion would likely make 2026/27 profit the cyclical peak.

Based on announced expansion plans and 12-18 months of buildout time, we estimate global

capacity will increase 69% from now to 2028, with China's capacity doubling. YOFC is the only

major player that has not discussed any expansion plan. Although we see it as a disciplined .Source: Factset, Jefferies

decision, YOFC could thus risk losing market share. Strong demand has also attracted M&A. LY

iTech (002600 CH, HOLD) announced its acquisition of Futong, a financially distressed preform

+OF maker. We est global capacity will cover 87%/85% of demand in 2027/28, indicating ASP

could peak in 2026. Our new PT is based on an avg SOTP, with the OF business valued at the

avg of 3.5x PB (2018 peak) and 14.1x 2027E PE (2sd above LT avg until mid-2025), and implies

only 9% upside. D/G to HOLD. .

Source: Factset, Jefferies