Sixty percent of revenue comes from a single customer, Tiantuo Communications achieves a new high in performance but faces many challenges

Ask AI · How does Tianfutong Communications balance customer concentration and performance growth?

On the evening of April 7, Tianfutong Communications (300394.SZ) released its 2025 annual report. During the reporting period, it achieved operating revenue of 5.16B yuan, a year-on-year increase of 58.79%; net profit attributable to the parent was 2.02B yuan, up 50.15% year-on-year. Both revenue and net profit hit record highs, with growth exceeding 50%. The company plans to distribute 7 yuan (including tax) in cash dividends per 10 shares, and also to convert 4 shares per 10 shares using capital reserve funds.

Benefiting from the high prosperity of AI computing power and optical communication industries, Tianfutong’s stock price has surged significantly in the past two years, with a maximum increase of nearly 880% since 2024. What’s more, since the beginning of this year, Tianfutong’s stock has risen over 60%, significantly outperforming industry leaders like Zhongji Xuchuang (300308.SZ) and Xinyi Sheng (300502.SZ).

After the impressive performance was realized, market focus has shifted from past performance realization to two core areas: the large-scale delivery capacity of 1.6T optical engine products and the commercialization process of CPO (co-packaged optical) technology. Meanwhile, details such as the company’s overseas customer structure, gross profit margin changes, and capacity ramp-up progress have also become hot topics in the industry.

Revenue and net profit hit new highs, with overseas market revenue accounting for over 70%

In 2025, the global data center expansion and rising demand for AI computing power have ushered in a new cycle of demand growth and technological iteration in the optical device industry. During the reporting period, demand for Tianfutong’s high-speed optical device products remained stable, driving leapfrog growth in performance. Compared to 2024, when the company achieved operating revenue of 3.252 billion yuan and net profit of 1.344 billion yuan, the revenue increased by nearly 2 billion yuan, and net profit grew by over 670 million yuan.

From a business structure perspective, Tianfutong’s optical device products are divided into two main segments: passive optical devices and active optical devices. During the reporting period, benefiting from the volume increase of high-end optical engine products such as 800G and 1.6T, the proportion of high-end active products increased, optimizing the business structure. The sales of active and passive optical devices grew in tandem, jointly driving performance growth.

Among them, active optical device revenue reached 2.997 billion yuan, an increase of 81.11% year-on-year, with its share of revenue rising by 7.15 percentage points to 58.06%. Tianfutong explained that the growth of active business mainly comes from increased deliveries of high-speed active products. Passive optical device revenue was 3.25B yuan, up 32.23% year-on-year, accounting for 40.37% of revenue.

As revenue and net profit surged, Tianfutong’s overall gross profit margin in 2025 showed a decline, mainly due to the decrease in gross profit margin of optical device products. According to disclosures, the gross profit margin of the company’s optical communication components was 53.62%, down 3.67 percentage points from 2024. Among them, the gross profit margin of passive products fell by 4.74 percentage points to 63.67%, while the gross profit margin of active business remained roughly the same as the previous year. Tianfutong explained that the optical device industry is highly competitive, and most of the company’s products face downward price pressure.

Regarding the risk of further decline in gross profit margin in the future, Tianfutong stated that in the initial stage of the Thailand factory’s production, due to factors such as employee proficiency and capacity utilization rate gradually improving, product manufacturing costs are higher than domestically produced ones; at the same time, the high-speed optical engine project funded by issuing shares to specific investors has a relatively low gross profit margin. As the project gradually increases sales revenue, it may reduce the company’s overall gross profit margin.

Looking at product sales regions, overseas markets remain Tianfutong’s core revenue source. In 2025, the company’s overseas market revenue reached 1.34B yuan, accounting for 74.35% of total revenue, up from 3B yuan in 2024, a year-on-year increase of 55.21%. Regionally, the company’s products cover major global optical communication markets such as North America, Southeast Asia, and Europe, with shipments to leading North American customers continuously growing, becoming the main driver of overseas revenue growth.

Cash flow remains stable, with new capital demands driven by expansion

Behind the record-high annual performance, market attention has focused on the quality of Tianfutong’s profits and cash flow status. As competition in the optical communication industry intensifies, the demand for higher computing power pushes the industry to require stricter standards for optical module power consumption, heat dissipation, and costs. Optical communication suppliers need to expand capacity to meet increasing demand while maintaining R&D investments to ensure product iteration, leading to continuous growth in capital needs.

Operating cash flow is a key indicator of the company’s true profitability and reflects its ability to collect payments from product sales. In 2025, Tianfutong’s net operating cash flow was 1.868 billion yuan, up 47.97% from 2.08B yuan in the same period last year, maintaining steady growth.

In terms of accounts receivable, as of the end of 2025, Tianfutong’s accounts receivable balance was 3.84B yuan, an increase of 346 million yuan from 776 million yuan at the beginning of the year. The scale of accounts receivable grew in line with revenue, but overall turnover days did not significantly lengthen, and over 90% of receivables were within one year.

Changes in inventory levels are directly related to the company’s future order delivery capacity. As of the end of 2025, inventory was 457 million yuan, an increase of 107 million yuan from the beginning of the year. This inventory growth matches the industry development pace: on one hand, the company has pre-stocked raw materials in anticipation of large-scale delivery of 1.6T products; on the other hand, uncertainties in upstream core chip supply have prompted the company to moderately increase inventory.

Notably, Tianfutong is accelerating the second phase capacity release of its Thailand production base. As the project advances in 2025, the company’s investment cash outflows increased, with a net cash outflow from investing activities of 264 million yuan during the reporting period.

Emerging concerns about short-, medium-, and long-term development, with capacity and technological route challenges to address

Since 2026, Tianfutong’s stock performance has significantly outperformed industry peers like Zhongji Xuchuang and Xinyi Sheng. As of April 8, the stock has risen 66% this year, while Zhongji Xuchuang and Xinyi Sheng have increased less than 17%.

Several industry analysts interviewed by reporters believe that the core reason for Tianfutong’s leading valuation is its more critical position in the industry chain and greater potential for value enhancement.

With the release of the annual report, market attention has shifted from past performance realization to the certainty of future growth. However, the company still faces multiple hidden risks and challenges in its short-, medium-, and long-term development.

Many analysts believe that, in the short to medium term, the capacity delivery of 1.6T optical engine products is the key factor determining the company’s performance growth in 2026.

The industry generally expects that 1.6T products will gradually enter a scale-up phase in 2026. Tianfutong has previously stated on interactive platforms that the 1.6T optical engine products have entered normal delivery stages. However, large-scale shipments heavily depend on the capacity ramp-up progress of the Thailand production base.

Currently, while the Thailand second phase capacity is operational, initial challenges such as insufficient employee proficiency and gradually improving capacity utilization remain. Production costs are higher than domestic facilities at the start, which will exert short-term pressure on the company’s overall gross profit margin.

Meanwhile, upstream EML optical chip shortages remain a critical variable affecting capacity release. EML chips require power supply to achieve laser emission and high-speed signal modulation. With significant technological advantages in speed and size, EML is a mainstream core solution capable of supporting 1.6T and 3.2T. Industry feedback indicates a severe global shortage of 200G EML chips, with supply unable to meet demand.

The shortage and rising prices of raw materials are also reflected in Tianfutong’s cost structure. According to disclosures, in 2025, raw materials accounted for the highest proportion of operating costs at 74.56%, amounting to 1.758 billion yuan, an 85.68% increase, far exceeding the growth rate of revenue and net profit.

Looking ahead, the commercialization process of CPO technology is a key factor in determining the company’s long-term growth ceiling and is currently the biggest market debate. CPO architecture integrates optical engines and chips on the same substrate through advanced packaging, enabling a 90% reduction in latency and 2-3 times increase in bandwidth density, recognized as a major development direction for next-generation optical communication technology.

In CPO architecture, FAU (fiber array), optical engine, and ELS (external light source module) are core components, accounting for over 40% of CPO switch costs. Tianfutong has technical accumulation in these areas. However, technical advantages do not guarantee performance certainty; actual market demand and commercialization pace are critical.

NVIDIA has announced at GTC that the Feynman architecture will adopt the CPO route. But large-scale product deployment is not expected until 2027, leaving a 1-2 year window. The industry chain’s CPO capacity is not yet fully built, and the business model for CPO switches is not finalized. Before achieving large-scale commercial use, Tianfutong’s actual benefits as an upstream supplier remain uncertain. Despite core devices in CPO, LPO, or silicon photonics routes being vital links in the industry chain, the uncertainty in technological implementation pace still poses long-term performance risks.

In addition, the extremely high customer concentration remains a fundamental operational risk for Tianfutong. The 2025 annual report shows that sales to the company’s largest customer, Fabrinet, reached 2.47B yuan, accounting for 63.31% of total annual sales, an increase from 61.69% in 2024. With 75% of revenue coming from overseas markets, this indicates a high dependence on a single overseas key customer.

Fabrinet is a U.S.-listed global leader in optical packaging and precision manufacturing, providing OEM services for laser and optical module manufacturers. If this customer reduces orders, adjusts procurement plans, or switches suppliers, the company’s revenue and profits could fluctuate dramatically. This is one of the core concerns in the market regarding its long-term operational stability.

(This article is from First Financial)