DS Precision (A): Optics business upside largely priced in, fair valuation; raise PO to CNY238; Neutral

研报英文原文证据摘录

DS Precision (A): Optics business upside largely priced in, fair valuation; raise PO to CNY238; Neutral

Reiterate Neutral; lift SOTP-based PO to CNY238

We raise our 2026-27E earnings estimates significantly to reflect the firm’s aggressive

expansion into optical transceivers and lasers. We note that Source Photonics delivery

looks better than expected, evident from strong 1Q results and the Chairman’s bullish

view on capacity expansion. We expect the optics business (Source Photonics) to

contribute 26%/48% revenue in 2026/27E, driving 123% 2026-28E earnings CAGR.

Despite the rosy outlook, we reiterate Neutral on DS Precision given fair valuation. The

stock trades at 22x 2027E, around the average of China transceiver makers (who

supplies to overseas). We view 22x P/E is relatively fair given DS Precision’s tier-2

position and its 40-50% exposure to consumer electronics and auto. We note DS

Precision’s over 100% share price rally post 1Q profit alert is led by (1) upbeat results,

and (2) market’s higher expectation on its order gain due to internal laser manufacturing

capability (a key supply constraint for transceiver currently). However, we highlight that

laser capacity expansion takes time to prove given difficulties around yield, especially

when spec is migrating to 200G EML from 100G, and 300-400mW CW laser is also more

difficult to produce vs 70-100mW CW lasers. We will turn more constructive on DS

Precision if it is able to secure more new customers to drive another earnings upgrade

cycle.

Exhibit 1: We model 54% revenue CAGR in 2026-28E on optics Exhibit 2: We expect earnings to more than double during 2026-27E

business expansion Net income trend, 2023-28E

Revenue trend by segment, 2023-28E

CNYmn Net income YoY (RHS)

CNYmn 40,000 500% Precision metal FPC 148,983