Zhongji Xuchuang's gross profit margin increased by 8 percentage points last year, but due to exchange rates, they earned over 300 million yuan less.

Ask AI · What are the underlying drivers behind Jit Ji Chuang’s gross margin surge of 8 percentage points?

21st Century Business Herald reporter Lei Chen

Optical module giant Jit Ji Chuang (300308.SZ) disclosed its 2025 annual report on the evening of March 30: full-year operating revenue of RMB 38.24 billion, up 60.25% year over year; net profit attributable to shareholders of listed companies of RMB 10.8B, up 108.78% year over year; and net cash flow from operating activities of RMB 10.9B, 3.44 times that of the same period last year.

Against the backdrop of overall high growth, changes in two financial metrics in the annual report are worth further breaking down.

First, the gross margin of the optical communication transceiver module business rose from 34.65% to 42.61%, increasing by nearly 8 percentage points. The main driver is the continued increase in the shipment mix of high-speed rate products (800G, 1.6T). Second, finance costs shifted from -RMB 144 million last year to RMB 183 million, with foreign exchange losses of RMB 318 million, reflecting that the company’s “both ends overseas” globalized business structure, while driving revenue growth, also faces disruptions from external variables such as exchange rates and tariffs.

A key figure in Jit Ji Chuang’s 2025 annual report is 42.61%, which is the gross margin of its optical communication transceiver module business, up 7.96 percentage points from 34.65% in the prior year. For a manufacturing company, such an annual increase is very significant.

（Image source: Jit Ji Chuang annual report）

The direct reason for the gross margin improvement is product mix changes. In 2025, the company sold 21.09 million optical communication transceiver modules, up 44.55% from 14.59 million in 2024.

But the more important change is that the shipment mix of high-speed rate products (800G and 1.6T) has continued to rise. The financial statements show that operating revenue for the optical communication transceiver module business increased from RMB 22.89B to RMB 37.46B, up 63.67%; meanwhile, operating cost over the same period increased by 43.74%. Revenue growth clearly outpaced cost growth, lifting overall gross margin.

In its annual report, Jit Ji Chuang explained that this is mainly attributable to strong investment by terminal customers in computing infrastructure. In 2025, overseas leading cloud providers maintained rapid growth in capital expenditures. The combined capital expenditures of four companies—Microsoft, Amazon, Meta, and Google—in the fourth quarter of 2025 reached USD 118.6 billion, up 64% year over year. Much of this spending was used for building GPU clusters and upgrading data center networks, and optical modules are a key component at the network end.

Jit Ji Chuang’s overseas revenue rose significantly as well. In 2025, overseas revenue was RMB 34.64B, accounting for 90.58% of total operating revenue, up 67.20% year over year; domestic revenue was RMB 3.6B, up 14.52%. Both the growth rate and share of overseas revenue further expanded, indicating that the company’s attachment to overseas cloud data center customers is deepening. The combined sales of the top five customers accounted for 75.98% of total annual sales, with the first-largest customer accounting for 24.06%.

To meet customers’ demand for higher-speed products, Jit Ji Chuang has continued increasing its R&D investment. In 2025, R&D expenses were RMB 1.615 billion, up 29.84%. At OFC2025, the company showcased 1.6T optical modules using a 3nm process and 800G LR2 coherent optical modules. As of the end of the reporting period, the company had 411 patents, including 215 invention patents; and 44 newly authorized patents that year.

Along with high growth, inventory scale has also been rapidly accumulating. At the end of 2025, the inventory volume of optical communication modules was 5.21 million units, up 105.12%. The company explained that this was mainly due to growth in customer order demand, leading the company to increase inventory preparation accordingly. The book value of inventory was RMB 1.61B, and the provision for inventory price declines was RMB 298 million. Optical module technology iterates quickly; if customer demand shifts to higher-speed products, inventory faces a certain risk of impairment.

Capacity expansion is also proceeding in parallel. The “Tongling Jit Ji Chuang High-End Optical Module Industrial Park Phase III Project,” financed via a stock offering to specific targets that the company conducted in 2021, was completed within this reporting period. The ending balance of construction in progress increased from RMB 53 million at the end of the prior year to RMB 1.422 billion, mainly due to an increase in machinery and equipment pending installation and renovation projects. This indicates that the company is still rapidly expanding capacity to meet future demand for high-speed optical modules.

According to Lightcounting’s forecast, in 2026 the combined market size of 800G and 1.6T optical modules is expected to reach USD 14.6 billion, representing about 64% of the overall optical module market. However, changes in technology routes also objectively introduce risks. New schemes such as LPO and CPO are being advanced, and in its annual report the company acknowledged that if the R&D direction is misjudged, the products will face the risk of being replaced.

In 2025, Jit Ji Chuang’s finance costs showed a clear shift. Full-year finance costs were RMB 183 million, while the same period last year was -RMB 144 million. The company explained that the main reason was an increase in foreign exchange losses. Specifically, in 2025 foreign exchange losses were RMB 318 million, while in the same period in 2024 they were foreign exchange gains of RMB 123 million. This results in a difference of RMB 441 million.

（Image source: Jit Ji Chuang annual report）

The occurrence of foreign exchange losses is directly related to the company’s business structure. Jit Ji Chuang’s overseas revenue share exceeds 90%. It holds a large amount of accounts receivable and cash denominated in US dollars. At the same time, its core raw materials—high-end optical chips and electrical chips—are also mainly purchased from overseas, forming a sizable amount of US dollar accounts payable.

This “both ends overseas” business model naturally exposes it to foreign exchange fluctuation risk.

In its annual report, Jit Ji Chuang conducted a sensitivity test: as of December 31, 2025, for companies whose functional currency for bookkeeping is RMB, for all types of US dollar financial assets and US dollar financial liabilities, if the RMB appreciates or depreciates by 4% versus the US dollar while other factors remain unchanged, then total profit would correspondingly decrease or increase by approximately RMB 645 million.

This reflects the two-sided nature of Jit Ji Chuang’s global operations. On one hand, the company has made substantive breakthroughs in overseas markets. The scale of overseas assets reached RMB 23.54 billion, accounting for 13.41% of the company’s net assets. To integrate more deeply into the global supply chain, in 2025 the company introduced international capital such as the Abu Dhabi Investment Authority and Temasek. It increased the capital of its Singapore subsidiary TeraHop by USD 517 million. After the capital increase, the company holds 67.71% of the equity of TeraHop in total, consistent with before the capital increase.

On the other hand, external uncertainties the company faces are also increasing. Besides foreign exchange risk, tariff policy is another important variable. The annual report specifically lists the risk of “changes in tariff policies,” noting that since April 2025, policies such as “increased tariffs” and “reciprocal tariffs” have been rolled out one after another, followed by exemption policies. The repeated changes in tariff policies may have some adverse impact on the company’s operations. The company stated it will continue to monitor changes in tariff policies and conduct thorough research and make use of policies such as tariff exemptions.

The stability of the supply chain is also a key issue to watch. The core raw materials needed for high-speed optical modules—such as optical chips and electrical chips—are currently still mainly dependent on overseas suppliers. The combined procurement amount of the top five suppliers accounts for 51.5% of total annual procurement, with the largest supplier accounting for 35.76%. The company said it has established long-term and stable cooperation relationships with major suppliers, but it also acknowledged that if major suppliers cannot supply on time, with the required quality, and in the required quantities, it will have a significant impact on the company’s production and operations.

Judging from cash flow and liabilities, the company’s financial position is relatively solid. In 2025, net cash flow from operating activities was RMB 12.98B, far exceeding net profit of RMB 11.58 billion for the same period, indicating strong collection ability. Net cash flow from financing activities was -RMB 1.42B, compared with RMB 1.492 billion in the same period last year. The main reason is that the borrowings received in the current period decreased and borrowings repaid increased. Cash and cash equivalents at period-end were RMB 1.6T, up by about RMB 10.9B from the end of last year. The asset-liability ratio was 30.18%, and the interest-bearing liabilities ratio was 3.69%, both at relatively low levels.

Overall, Jit Ji Chuang has strong performance in profitability and cash flow, but external risk factors are also increasing.