UBS raised its target price on Yangtze Optical Fibre and Cable (06869.HK) 14% to HK$330 and reiterated Buy, lifting 2026-2028 earnings forecasts to RMB 9.1 billion, RMB 15.6 billion and RMB 19.1 billion on stronger AI-driven fibre pricing. The bank's 2027 and 2028 estimates sit 7% and 19% above consensus, and it expects gross margin to hold above 70%. The call directly challenges the capacity-glut fear that has taken the shares down 37% from their June peak.
Yangtze Optical Fibre and Cable won a 14% target-price increase from UBS, which now values the Hong Kong-listed maker of optical fibre at HK$330 a share and kept its Buy rating, betting that AI data-centre demand will hold fibre prices higher for longer than the market assumes.
The Swiss bank's revised estimates sit 7% above consensus for 2027 and 19% above for 2028, according to the note published Sept. 24. UBS attributed the upgrade to fibre prices performing better than expected on artificial-intelligence demand and to the company's shift toward higher-performance fibre products.
"With ample preform capacity and industry-leading technology, we expect gross margin to stay above 70%," UBS said, assuming unit production costs hold steady.
The 06869.HK shares have fallen 37% from their June peak, a decline UBS tied to investor concern that capacity expansions announced by Chinese peers and new entrants will cap earnings in 2027. The bank argued that oversupply risk is limited on two grounds: the company's multi-year research spending leaves it better placed than domestic rivals to sell high-performance fibre into global data-centre markets, and equipment supply bottlenecks plus lengthy customer qualification cycles should stretch rivals' expansion timelines beyond current expectations.
UBS expects average selling prices to remain elevated past 2027, citing tight industry supply and an improving product mix. The bank's 2028 earnings forecast of RMB 19.1 billion implies a further 22% increase over its 2027 figure, a trajectory that depends on the ASP assumption holding.
The demand leg of the thesis is visible in the transceiver supply chain. Fabrinet reported data-centre revenue of $669 million in its fiscal fourth quarter, up 68% from a year earlier and 13% sequentially, with data-centre interconnect annualising above $1 billion. Lumentum's Systems revenue reached $357 million, up 123% year over year, and Applied Optoelectronics posted data-centre revenue of $107.7 million, up 140.4%, with capacity for 800G and 1.6T products projected to exceed 650,000 units a month by the end of 2026.
Those figures support the pricing leg of UBS's case but do not settle the capacity question. Fabrinet is adding roughly $3 billion to $3.5 billion of revenue capacity at its Building 10 site in Chonburi, taking total capacity to $8.5 billion-$9.3 billion, and management has said customers are providing visibility through the end of 2027 and beyond, though not as firm orders.
For holders, the note sets up a clean test: either fibre ASPs hold through 2027 and the 37% drawdown looks like a mispricing, or peer capacity arrives on schedule and the 2027 estimate becomes the peak. The swing factors are peer capacity announcements and the company's next set of disclosed margins and ASPs.
This article is for informational purposes only and does not constitute investment advice.
