Q4 earnings beat; optical momentum continues across multiple architectures

Q4earnings beat; optical momentumcontinuesacross multiple architectures Lumentum released 4QFY26 results, with revenue up 25% QoQ/109% YoY toUS$1.01bn, ahead of Bloomberg consensus of US$990mn and at the high endofmgmt.’sguidance. Non-GAAP GPM reached 50.4%, also above consensus,driven byafavorable mix,improvedutilization and selective pricing. For 1QFY27,mgmt. guided revenue of US$1.225-1.275bn and non-GAAP OPM of 39.5-40.5%.Weremain constructive as laser demand broadens across pluggable,NPO and CPO architectures.Maintain BUYw/TP lifted to US$1,230based onanunchanged 35x FY28E P/Eongreater margin expansionandenhancingproduct mix. Target PriceUS$1230.00(Previous TPUS$1070.00)Up/Downside49.9%Current PriceUS$820.59 GlobalAIhardware Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Margintargets reached well ahead ofplanned revenue scale.At OFC2026 in March,mgmt.associated 49-52% GPM with a US$2bn quarterlyrevenue run-rate, yetthe Companyalready delivered 50.4% GPM at justUS$1.01bn revenuein Q4.Themargin beatreflectedboth higherutilizationanda richer laser mix and improving pricing.Importantly,CW lasereconomics have improved after die-size reduction, narrowing the margin gapversus EML. We believe this suggests earnings leverage is materializingearlier than revenue scale alone would imply.We raise our revenueforecast in FY27/28E by 13/18% and non-GAAP GPM by 0.9/0.8ppt. Kevin ZHANG(852) 3761 8727kevinzhang@cmbi.com.hk Aaron GUO(852) 3916 3715aaronguo@cmbi.com.hk NPO expandsinstead ofreplacingCPO opportunity.Mgmt.views NPOas fully additive to CPO, with multiple customers adopting near-packagedarchitectures before eventual CPO migration. Initial NPO deployments areexpected to use high-power lasers through ELS, while later designs mayintegrate mid-power lasers directly into optical engines. This broadenstheCompany’saddressable laser content across architectures,while CPOdemand remains intact and the company has already received its first ELSmodule order for 2HCY27delivery. Supply remains the key constraint across laser products.EML demandcontinues to exceed supply, while200G EML already exceeded25% of EMLrevenuein Q4. Ultra-high-power laser demand has accelerated even faster,leavingthe Company further behind customer demand despite capacityexecution remaining on track.Meanwhile, SiPho adoption at 1.6T is creatingincremental CW demand rather than simply replacing EML. We believesimultaneous tightness across EML, CW and UHPwill continue tosupportpricing, utilization and sustained margin resilience.Maintain BUY with TP adjusted to US$1,230, based on the same 35x FY28E P/E, at a premium to its peers’CY27Eaverageas we see theCompany asapurerAIoptical player.We see upside increasingly comingfrom both higherearnings conversion and a broader addressable market.TheCompany is monetizing AI optical growth through EML/CW inpluggables, UHP/ELS in CPO and NPO, while 1.6T transceivers and OCSadd systems-level exposure.Risks:supply chain disruption, geopoliticaluncertainties, etc. Source: FactSet Source: Company data,CMBIGM estimates Source: Company data, CMBIGM estimates Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to thesecurities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission)(1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issueof this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY : Stock with potentialreturn of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 monthsCMB InternationalGlobal MarketsLimited OUTPERFORMMARKET-PERFORMUNDERPERFORM Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB InternationalGlobal