On the evening of October 28, T&S Communications released its third-quarter 2026 results, the first of the three Chinese optical module leaders to report. Third-quarter revenue came in at 1.923 billion yuan, up 31.50% year over year, with net profit attributable to shareholders of 879 million yuan, up 55.30%. For the first nine months, revenue reached 4.751 billion yuan, up 21.25%, and attributable net profit was 2.083 billion yuan, up 42.18%. The figures are unaudited.

Innolight and Eoptolink are expected to report on October 30. All three stocks rose on October 28: T&S Communications closed up 6.79%, Innolight gained 10.28%, and Eoptolink rose 8.08%.

The three companies occupy different slots in the chain. T&S makes optical components, the passive parts and packaging that go inside optical modules, placing it upstream of the module makers. Innolight and Eoptolink build the modules themselves. In its filing, T&S attributed revenue growth to "the accelerating development of the global artificial intelligence industry and global data center construction, which has driven sustained and steady growth in demand for high-speed optical component products." The same day, CNR reported that Innolight said in its filing that its order book is full, with orders from major overseas customers already extending into 2027 and guidance from some key customers reaching 2028.

Revenue Up 21%, Operating Costs Down 5.69%

Read two lines of the income statement together and an unusual combination appears: revenue for the first nine months of 4.751 billion yuan, up 21.25%, against operating costs of 1.779 billion yuan, down 5.69%. Revenue rising, costs falling.

Those two figures imply a gross margin of 62.56% for the first nine months, against 51.87% a year earlier, a gain of 10.69 percentage points. That is not a disclosed metric; it is calculated from the statements. The basis is cumulative nine-month data, and because the quarterly report does not break out single-quarter operating costs, a quarterly gross margin cannot be derived.

The filing's entire explanation for the cost line is that there was "no material change." Nowhere does it say why gross margin rose. Over the same period, R&D spending hit 296 million yuan, up 47.71%, growing more than twice as fast as revenue. Financial expenses came to 61.745 million yuan, against negative 35.0805 million yuan a year earlier, a swing of 276.01%, which the company attributed to higher foreign exchange losses. Expenses are climbing while costs fall.

Inventory Up Nearly 1.8x, Contract Liabilities Double

A better read on the order book than gross margin comes from three balance sheet items all moving the same way.

Inventory stood at 1.274 billion yuan, up 178.65% from 457 million yuan at the start of the year, which the filing describes as "an increase in raw materials from strategic stockpiling." Prepayments were 92.187 million yuan, up 343.75%, attributed to "an increase in advance payments for materials." Contract liabilities reached 366 million yuan, up 128.14%, attributed to "an increase in advance receipts from customers."

Stockpiling materials, prepaying suppliers, and collecting cash from customers, all at once. The three line items point in the same direction: the company believes the orders ahead will hold, which is why it is willing to convert more than 800 million yuan of cash into raw materials and work in progress.

Net Profit Up 42%, Operating Cash Flow Up Only 8.75%

There is a gap between the income statement and the cash flow statement. Net profit for the first nine months was 2.084 billion yuan, up 42.18%, while net cash from operating activities was 1.462 billion yuan, up just 8.75%, a difference of 622 million yuan.

Accounts receivable over the same period rose 73.33% to 1.945 billion yuan, which the filing calls a "natural increase driven by sales growth." Credit impairment losses came to 44.4898 million yuan, up 154.99% year over year, on higher bad debt provisions.

Two line items show roughly where the cash is tied up: inventory is 817 million yuan higher than at the start of the year and accounts receivable 823 million yuan higher, a combined 1.64 billion yuan.

One more detail: other current assets rose 134.38% to 50.0925 million yuan, which the filing attributes to "Hong Kong listing expenses incurred during the reporting period that are subject to capitalization."