Key Takeaways
Optical module manufacturer Eoptolink (300502.SZ) saw its stock fall more than 11 percent on Friday despite reporting a 106 percent year-over-year jump in first-quarter revenue, as unexpected currency losses hit profits.
“The net profit miss was mainly due to foreign exchange losses, which is a non-operating disturbance and does not change the judgment on the company's subsequent fundamentals,” Goldman Sachs analyst Ting Song said in a report.
Eoptolink’s revenue for the quarter reached 83.38 billion RMB, about 10 percent ahead of analyst forecasts. However, net profit of 27.74 billion RMB was down 13 percent from the previous quarter and missed Goldman’s projection by 12 percent, primarily due to higher financial expenses from exchange rate fluctuations.
Both Goldman Sachs and Citigroup affirmed that the quarter’s results do not alter the company’s strong medium-term prospects. Future revenue growth is expected to be driven by four main factors: improving supply of optical module chips, upgrading the product mix to 1.6T and faster solutions, increasing the revenue share from silicon photonics, and accelerating capacity expansion to support higher shipment volumes.
The company’s expansion of its production base in Thailand is proceeding as planned, which should ease previous supply constraints. This is supported by a significant increase in the company’s inventory to approximately 90 billion RMB from 72 billion RMB in the prior quarter, and a sharp rise in prepayments to 6.82 billion RMB from 0.17 billion RMB.
The stock drop highlights a disconnect between the market's short-term reaction and analysts' long-term bullish outlook based on fundamental demand for high-speed optics. Investors will be watching for execution on the 1.6T module ramp-up and capacity expansion in the upcoming quarters.
This article is for informational purposes only and does not constitute investment advice.
