CITIC SEC: Explosive growth in the market space for optical module equipment, focusing on the trends of efficiency and localization in the chip, coupling, and testing processes.

CITIC SEC published a research report stating that the demand for optical communication is experiencing nonlinear growth, and the market space for optical module equipment is booming. In the process of manufacturing optical modules, the precision requirements of the chip mounting process need to be improved, leading to an increase in equipment value. The barrier to entry for coupling equipment is high, and the importance of passive coupling is further strengthened. There is an urgent need for domestication of optical sampling oscilloscopes in the testing process, and a high customization requirement for AOI inspection equipment. It is optimistic about companies with a high exposure in the optical module equipment sector, actively involved in acquisitions to complement their weaknesses, and having a solid core business. It recommends the acquisition of Filate Testing to build a leading industrial X-ray inspection equipment for the reliability testing of optical communication. It recommends the top domestic manufacturer of industrial cameras, a key component in the upstream of optical module equipment. It suggests focusing on companies that have capabilities in optical module epitaxial growth and AOI inspection business, and acquired companies like Central South Hongsi to strengthen their coupling business. Key points from CITIC SEC: The demand for optical communication is experiencing nonlinear growth, and there is a surge in the market space for optical module equipment. In terms of usage, the usage of optical modules is experiencing nonlinear growth from Scale out to Scale up. In terms of packaging, from PCB-level packaging to board-level packaging, the structure of optical modules is rapidly iterating and upgrading. The company believes that with factors such as capacity expansion, technological iteration, and increased automation driving the industry, leading manufacturers' capital expenditure will see a surge in 2026 and 2027. The company estimates that the market space for optical module equipment in 2026E/2027E would be 34.53/36.34 billion yuan respectively. The manufacturing of optical modules mainly comprises four major processes: chip mounting, coupling, assembly, and testing. From the perspective of value, based on Frost & Sullivan data (quoted from the listing prospectus of Luchiqi Intelligent), the value distribution of chip mounting/coupling/aging testing/other (assembly, bonding) equipment is 18.9%/23.3%/31.4%/26.4% respectively. Among them, coupling and testing have higher value. Focus on the trend of efficiency and domestication in chip mounting, coupling, and testing processes. Chip mounting: as the bandwidth of optical modules upgrades from 800G to 1.6T, 3.2T, the mounting accuracy increases synchronously, leading to an increase in the value of chip mounting equipment. Coupling: there is a high barrier to entry in coupling, and coupling accuracy directly affects the performance of optical modules. The importance of passive coupling is increasing, further enhancing the efficiency of multi-channel coupling. Testing: There is a pressing need for domestic solutions for optical sampling oscilloscopes. The complexity of AOI testing is increasing, and the customization market is becoming more fragmented. Risk factors: Slowdown in downstream capital expenditure: if the growth rate of AI computational power does not meet expectations, cloud vendors reduce their capital expenditures, which will lead to a compression of the market space for optical modules and significantly weaken the growth prospects of the sector. Changes in technological roadmap: the rapid iteration of optical module technology may result in a drop in the value of certain processes as optical modules upgrade to NPO, CPO, and the packaging structure transitions from PCB-level to board-level. Oversupply of capacity and deterioration of competitive landscape: once the optical module roadmap is fixed, if equipment homogenization intensifies, a significant increase in production by equipment manufacturers could lead to an oversupply of capacity, trigger price wars, and depress industry profitability. Unmet expectations in domestication progress: certain processes have a low level of domestication, and if domestic manufacturers are unable to achieve technological breakthroughs due to issues such as talent resources, R&D investment, and key component supply, it could slow down the industry's progress.