Citi: US Proposed Ban on Chinese Optical Modules Unlikely to Implement in Short Term, Eoptolink and Dongshan Precision Have Largest Exposure

According to Chaoxiang Research, Citigroup's research report on August 9 noted that the FCC's proposed ban on Chinese optical modules entering the U.S. market, as reported by Reuters, remains at the proposal stage, and optical modules have not been listed in any effective bans. Chinese optical module suppliers hold a 60% to 70% share of high-speed optical modules for U.S. hyperscale vendors, and non-Chinese suppliers cannot fill the gap in the short term, making the likelihood of the ban being implemented low. Although FCC Order 26-50 establishes two types of restricted list mechanisms for manufacturers and origins, optical modules are only mentioned in the bill of materials disclosure examples and are not restricted products. Citigroup believes that the origin restriction path is more likely to be implemented than the manufacturer restriction, but the probability of implementation in the near term is very low. Eoptolink and Dongshan Precision have the largest exposure to U.S. optical module exports and face higher risks if the ban is implemented; TFC Communication, as a passive component supplier, is relatively insulated. Citigroup gives a buy rating to Eoptolink, Dongshan Precision, and TFC Communication, with target prices of 701 yuan, 350 yuan, and 419 yuan RMB, respectively.