Tuesday, Yangtze Optical Fibre And Cable Joint Stock Limited Company (6869:HK) (OTC: YZOFF) received an upgrade in its stock rating from Neutral to Buy by Nomura/Instinet, with the price target also being raised to HK$15.00 from HK$13.50. The upgrade was based on the company's potential to capitalize on the growing demand for AI networking products and its diversification efforts, which are expected to start showing results in 2025.
The analyst from Nomura/Instinet highlighted YOFC's position as a leader in the Chinese optical fiber market and its controlling interest in Broaddex and Everprotech. Broaddex, a supplier of Active Optical Cables (AOC) and Active Electrical Cables (AEC), along with Everprotech, a key supplier of Multi-fiber Termination Push-on (MTP) and AEC, positions YOFC to take advantage of the increasing global demand from AI data center customers.
Despite lowering the forecast for the company's revenue and earnings for fiscal years 2024 and 2025 to account for the less-than-anticipated fiber demand in the telecom sector, the analyst remains optimistic about YOFC's future. The expected tipping point in 2025 is attributed to strong demand for AI, improved product mix, and an increase in overseas revenue and AI product contributions.
YOFC's diversification strategy, especially its involvement with Broaddex and Everprotech, is seen as a key driver for the company's growth. The analyst's outlook suggests that while the telecom operators' capital expenditure (capex) cycle has been a challenge, YOFC's business is on a path to recovery, bolstered by the AI sector's robust demand.
The revised revenue and earnings projections for the following two fiscal years reflect a conservative stance due to the current dip in demand within the telecom industry. Nonetheless, the analyst's long-term view is positive, anticipating a significant turnaround for YOFC as it leverages its market position and diversified portfolio to meet the burgeoning needs of AI data centers worldwide.
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