Citi: Maintains "Buy" Rating on Zhongji Innolight (03308) H-Shares and HK$1,394 Target Price; Demand Unchanged, Share Price Correction May Be Overdone

Citi issued a research report maintaining the "Buy" rating on Zhongji Innolight (03308) H-shares and the HK$1,394 target price, while keeping the A-share (300308.SZ) target price unchanged at RMB1,212. The bank noted that Zhongji Innolight's A-shares and H-shares fell 12.7% and 10.9% respectively on November 3, which it believes was related to investor concerns over order cuts. However, management has clarified that the company has not seen widespread order cuts, with only limited structural adjustments by individual customers. Citi believes the share price correction may be overdone and the company's fundamentals remain solid, though the stock has been weighed down by cooling sentiment in the AI market. The bank noted that demand for Zhongji Innolight's 800G and 1.6T products remains strong, with most 2027 orders already locked in and at least one major customer having provided clear demand guidance for 2028. No signs of demand slowdown were seen between Q4 2026 and Q1 2027. Optical module supply remains tight, product pricing is resilient, and the overall pricing environment is favorable. On the supply chain side, supply of DSPs, optical chips, and PCBs has been gradually improving since Q3 2026, which is expected to support quarter-on-quarter shipment growth over the coming quarters. The company believes that a potential merger between leading DSP and laser suppliers would have no material impact on supply availability.