China Securities Co., Ltd.: There is no need to overly worry about the impact of tariffs, focus on the release of domestic demand for photovoltaic modules and independent controllability.

China Securities Co., Ltd. released a research report stating that domestic optical module companies have fully deployed overseas production capacity, their supply chain positions are stable, and there is no need to excessively worry about tariff impacts. Among them, major domestic optical module companies have layouts in Southeast Asian countries and have basically achieved large-scale shipments; the proportion of optical modules in overall Capex is relatively low, but domestic optical module companies have already occupied important industrial positions, with overseas technology clients having sufficient drive. In the future CPO era, the optical module industry is expected to evolve into the optical engine industry, with the market size expected to achieve significant growth, while bringing about evident demand pull and industrial structure reshaping in the areas of optical chips, packaging, and equipment. In addition, the satellite internet sector is about to enter a period of intensive catalysis, with constellation networking gradually starting, and the industry chain is expected to benefit fully. The main points of China Securities Co., Ltd. are as follows: Domestic optical module companies have fully deployed overseas production capacity, their supply chain positions are stable, and there is no need to excessively worry about tariff impacts. Recently, the U.S. presidential election came to a close, with Trump defeating Harris to become the next President of the United States. The market is concerned that Trump's administration will impose tariffs, having a significant impact on A-share companies in the overseas computing power export chain. From the current standpoint, the impact is very limited and there is no need to excessively worry about the tariff impacts on optical modules. First, recent market trading shows that the stock prices of most computing power companies have already largely reflected the impact of the Trump Trade. Second, major domestic optical module companies have layouts in Southeast Asian countries and regions like Thailand, and have basically achieved large-scale shipments. Third, the proportion of optical modules in overall Capex is relatively low, but their role is increasingly important, with domestic optical module companies already occupying important industrial positions, allowing overseas technology clients to have enough drive to reduce supply risks caused by tariffs. The penetration rate increase of CPO will bring about significant growth in the market size of the optical communication field. The focus of CPO technology application is not only in reducing power consumption and costs on the switch side, but more so in breaking through the speed bottleneck of signal transmission in the IO domain. The market has a relatively clear understanding of the conversion ratio of GPU: optical modules = 1:2.5, but if CPO is applied in scale up applications, then GPU: optical engines = 1:11.5 will become a reality. In addition to GPUs, CPUs, FPGAs, ASICs, and even Samsung's HBM will also use it. In the future CPO era, the optical module industry is expected to evolve into the optical engine industry, with the market size expected to achieve significant growth, and this process will bring about evident demand pull and industrial structure reshaping in the areas of optical chips, packaging, and equipment. The release of demand will bring about an increase in EPS and the autonomous controllability of the industry chain is the main focus in the short term. Currently, the valuations of optical module companies are at relatively low levels. The certainty of demand for 800G and 1.6T in 2025, the stable supply structure, strong AI industry trends are recommended to be focused on. At the same time, the significant uncertainty brought about by changes in the geopolitical environment highlights the importance of autonomous controllability. In addition, the commercial aerospace and satellite internet sectors are about to enter a period of intensive catalysis, with constellation networking gradually commencing, commercial launch facilities starting operations, and the release of phones with direct satellite connections, the industry chain is expected to benefit fully. Risk warning: Changes in the international environment affect the security and stability of the supply chain, affecting the progress of related companies in expanding overseas; the development of the AI industry falls short of expectations, affecting the demand for companies in the cloud computing industry chain; intensified market competition leads to rapid decline in gross profit margins; exchange rate fluctuations affect the exchange gains and gross profit margins of export-oriented enterprises, including companies in sectors such as ICT equipment, optical modules/optical components; the development of the digital economy and the construction of the digital China fall short of expectations; the development of cloud computing business by telecommunications operators falls short of expectations; capital expenditure by operators falls short of expectations; capital expenditure by cloud service providers falls short of expectations; demand in the communication module and intelligent controller industries falls short of expectations.