CMSC released a research report stating that the optical module industry is entering a major expansion year in 2026. High-speed modules, represented by 800G, are benefiting from the sustained surge in AI data center computing power demand. Major optical module manufacturers are initiating a new round of capacity expansion, driving rapid growth in procurement demand for upstream equipment. The bank believes the driving force behind this wave of optical module equipment demand has strong sustainability. It is recommended to focus on companies with core technological barriers in the fields of optical module testing and automated assembly equipment, particularly those with significantly accelerated order growth and notable profit elasticity. Furthermore, companies in the general-purpose test and measurement instrument sector (oscilloscopes, signal sources, etc.) also benefit from the increased R&D and production line debugging needs of optical module manufacturers and are poised to share in the industry's prosperity in the long term. CMSC's key views are as follows:

**Stock Performance** In Q1 2026, stock performance within the optical module equipment sector showed significant divergence. The continued outperformance of AI computing power demand and rising expectations for 800G/1.6T module capacity expansion have boosted overall market attention on the sector. However, due to differences in business structures, the gains and losses among companies varied considerably. Overall, most companies achieved positive returns, indicating a generally positive market sentiment. Top performers were primarily companies experiencing favorable marginal changes in their optical module equipment businesses.

**Q1 2026 Financial Performance** In Q1 2026, the overall revenue of the optical module equipment industry grew 46.70% year-over-year, while net profit attributable to shareholders surged 95.39%. The profit growth rate was approximately double the revenue growth rate, highlighting a significant operating leverage effect. Among them, Lianxun Yiq's performance was particularly outstanding. Its quarterly revenue jumped from RMB 201 million in Q1 2025 to RMB 488 million, and net profit attributable to shareholders increased from RMB 19 million to RMB 119 million, a year-over-year increase of 515.17%. This is the most direct reflection of the explosive demand for equipment in the current wave of optical module expansion.

**Q1 2026 Gross and Net Profit Margins** In Q1 2026, the overall gross profit margin for the optical module equipment industry was 40.26%, a slight decrease of 0.08 percentage points year-over-year, remaining largely stable. The net profit margin was 9.97%, an improvement of 2.59 percentage points year-over-year, indicating a significant enhancement in profitability. The core logic for profitability in this sector is: gross margin determines the ceiling for profits, while the expense ratio is the key variable determining whether profits can be realized. For companies with still relatively high expense ratios, the key to profit improvement lies in whether revenue scale can grow rapidly enough to dilute fixed costs. As the optical module expansion cycle progresses, companies that can simultaneously reduce their expense ratios while scaling up are likely to see earnings elasticity exceed expectations.

**Key Companies to Watch** Core companies include: Coray Technology, Robert Bosch (Mechanical & Communication), Bozhong Precision (Mechanical & Electronics), Kaige Precision (Small & Mid Cap), Quick Intelligent, Lianxun Yiq (Mechanical, Communication, Electronics & Computer), Huashengchang, Sunic Technology (Mechanical & Computer), Huaxing Yuanchuang, Rigol Technologies (Electronics & Mechanical), and Siglent Technologies (Electronics & Mechanical).

**Risk Warnings** Potential risks include: AI capital expenditure falling short of expectations, intensifying industry competition, and risks associated with technological iteration.