China's top three optical module stocks lose over $170bn in market cap in one day

September 28, 2024 — Zhongji Innolight (300308.SZ) has completed a 5 billion yuan share buyback, but the move has yet to restore market confidence.

On September 28, during intraday trading, multiple optical module concept stocks saw their share prices decline. Zhongji Innolight fell 9.06%, Eoptolink Technology (300502.SZ) dropped 8.01%, and TFC Communication (300394.SZ) slid 9.12%. Collectively, the three A-share stocks—often referred to as the "Yi-Zhong-Tian" trio—lost over 170 billion yuan in market capitalization. Zhongji Innolight's Hong Kong-listed shares (03308.HK) also weakened during the session, falling more than 8%.

Buyback Details

On September 24, the last trading day before the Mid-Autumn Festival holiday, Zhongji Innolight announced the results of its share buyback. The company repurchased a total of 5.653 million shares through its dedicated securities repurchase account via centralized竞价 trading, representing 0.48% of its total share capital, for a total payment of 4.997 billion yuan.

Zhongji Innolight stated that the buyback was driven by "confidence in the company's future sustained and stable development, and to better promote long-term, continuous, and healthy growth." However, based on the intraday performance on the first trading day after the Mid-Autumn Festival holiday, the buyback has not yet boosted market sentiment.

Price Declines Since June Peaks

All three stocks—Zhongji Innolight, Eoptolink, and TFC Communication—reached their price highs in June 2024. From those peaks to September 24:

• Zhongji Innolight: down 34.51%
• Eoptolink: down 41.77%
• TFC Communication: down 17.63%

Market Concerns Over Data Center Delays

Optical modules serve downstream markets including data centers. On the news front, recent market reports indicate that Oracle has issued a "force majeure" notice to a large data center developer, citing potential delays in securing power supply for the facility. Data center construction already faces constraints from high costs and resource supply shortages, and this news has fueled investor concerns about potential delays in data center buildouts.

Morgan Stanley analysts expect that some data centers face significant construction or completion risks. Oracle's situation has drawn attention to loan and leasing risks associated with data center construction, and companies planning to finance AI infrastructure through debt markets are also facing challenges.

Strong First-Half Financial Performance

Despite the market downturn, all three "Yi-Zhong-Tian" stocks reported revenue growth in the first half of the year. Combined, the three companies generated:

• Total revenue: 65.52 billion yuan
• Total net profit: 22.38 billion yuan

Individual Performance (H1 2024)

| Company | Revenue (billion yuan) | Revenue Growth | Net Profit (billion yuan) | Net Profit Growth | |---|---|---|---|---| | Zhongji Innolight | 41.778 | +182.49% | 13.651 | +241.7% | | Eoptolink | 20.91 | +100.34% | 7.529 | +90.98% | | TFC Communication | 2.828 | +15.15% | 1.204 | +33.92% |

Other Confidence-Boosting Measures

In addition to Zhongji Innolight's share buyback, Eoptolink has also taken steps to signal confidence to the market. In August, the company set performance targets in a draft stock incentive plan, establishing revenue goals for reserved shares:

• 2027: no less than 90 billion yuan
• 2027–2028 cumulative: no less than 240 billion yuan
• 2027–2029 cumulative: no less than 450 billion yuan