Text | Jingyu
Chinese growth and Internet user growth have both peaked, and many industries have been forced to enter fierce stock competition.
In this context, more and more Chinese companies are seeking to go abroad and go overseas. Even if they have not gone to sea, they usually have a positive attitude towards going to sea. Wang Xing once pointed out to domestic Internet companies that the direction of looking for increments is "globalization of heaven and earth", and "globalization" is to look at the whole world and go to sea and the world.
Transsion Holdings, the "King of Mobile Phones in Africa", has always been regarded as a model for Chinese companies to go to sea. When the domestic mobile phone manufacturers were fiercely reshuffled, and the brand dropped sharply from more than 200 in 2016 to more than 120 at the end of 2017, TRANSSION opened up a situation in the African market and gradually occupied more than 50% of the African mobile phone market.
The advantageous market position and unique target attributes have also made TRANSSION Holdings popular in the capital market. In 2019, its stock price rose all the way after its listing on the domestic science and technology innovation board, and its market value soared to more than 200 billion yuan at one point.
Since February 2021, Transsion's stock price has fluctuated and fallen, and it has been cut from the highest point, and the corresponding PE valuation has also fallen to about 26 times. The market's expectations for future growth and growth have been lowered.
The reasons for being looked down upon are not complicated. Transsion is facing the first hurdle on its way out to sea - the ceiling of the African mobile phone market is approaching, and diversified businesses other than mobile phones cannot pick up the beam in a short period of time. To return to the high-speed growth channel, it will take a while to accumulate strength.
01 "King of Africa" Ceiling looms
Judging from the latest performance in 2021 alone, Transsion performed well. Financial data show that in 2021, the operating income of TRANSSION Holdings was 49.254 billion yuan, an increase of 30.33% year-on-year; the net profit attributable to the mother was 3.924 billion yuan, an increase of 46.08% year-on-year.
However, a closer look at the business structure will find that the mobile phone business, which accounts for nearly 95% of transsion revenue, is facing a more fierce market competition test, especially the African mobile phone business, which accounts for more than 50% of the revenue, seems to be approaching the market ceiling.
The so-called approaching ceiling does not mean that the penetration rate of the African mobile phone market has reached the top, but that there is not much room left for Transsion to exert itself.
According to the statistics of the agency IDC, the market share of TRANSSION mobile phones (including smart phones and functional machines) in the African market has reached 52.5% in 2019. Generally speaking, after a single market share reaches 50%, it will be very difficult to further increase the market share.
At this time, whether it is the change of consumer preferences or the rise of other opponents, it is not a small challenge for Transsion. Not to mention that many of the opponents are Chinese companies.
For example, OPPO has been entering many African countries since 2015; Xiaomi Group set up a team in 2019 to announce its entry into the African market; mara Phones, a subsidiary of The Mara Group in Rwanda, also entered the market in the second half of 2019. According to IDC data, in the First Quarter of 2021, Samsung and OPPO ranked second and third in the African smartphone market.
At the beginning, Transsion was able to occupy the African market, in addition to entering the game earlier, relying on in-depth localization and close to African user habits, and its product features include "four cards and four waits", "intelligent tanning", "mobile phone waterproof and anti-corrosion" and so on. But these technologies are not how difficult they are, but they are better than the data accumulation and first-mover advantages that users prefer, and the barriers are not high. In the face of strong new opponents, it is not easy for TRANSSION to grow synchronously with the expansion of market scale and not to erode its market share.
It can also be seen from transsion's business data that from 2018 to 2020, the revenue growth rate of transsion's African business has been lower than 20%. Its growth is mainly dependent on Asian and other regional markets, including India, Bangladesh, Pakistan, Indonesia and other countries.
In these emerging markets, TRANSSION faces a very different market environment than in Africa. In India, Latin America, and Southeast Asia, Chinese manufacturers have long been deeply laid out, and TRANSSION is a new player, so it needs to invest a lot of money to carry out marketing and build brands. According to the financial report, the gross profit margin of TRANSSION's business in Asia and other regions in 2020 was 18.27%, far lower than the gross profit margin of the African business of 30.99%.
According to the report of the agency IDC, the global mobile phone market has entered the era of stock, and emerging countries are one of the few incremental markets. However, Transsion is facing the risk of peaking growth in Africa, and in emerging markets such as Southeast Asia, the Middle East and South America, it will face long-rooted domestic manufacturers, so the capital market's expectations for its future growth will be correspondingly reduced or become conservative.
02 "Grocery store" business is difficult to gain momentum
Perhaps due to the relative slowdown in the growth of the main mobile phone business, since the second half of last year, the diversified business of TRANSSION Holdings has been paid attention to by more research institutions. Another name of Transsion, "African version of millet", has also been frequently mentioned.
Like Xiaomi, TRANSSION also laid out 3C accessories and home appliance business. According to public information, TRANSSION founded the 3C accessories brand Oraimo and the home appliance brand Syinix in 2014 and 2015 respectively. In 2019, TRANSSION's home appliance business adopted a multi-brand strategy, adding home appliance brands itel and Infinix.
At present, The home appliance market in Africa is in a relatively blue ocean state, the penetration rate of TELEVISION is only about 40%, the penetration rate of refrigerators, air conditioners, washing machines is even lower, and most of them are mainly white-label products.
Based on the population volume of about 1.3 billion in Africa, the market space of its home appliances is expected to be comparable to that of the Chinese market in the future, and the market space of four types of products such as air conditioners, refrigerators, washing machines and TVs is expected to exceed 400 billion yuan.
This seems to be a huge market with huge development space, but due to the low level of economic development in Africa and the low coverage of the power grid, it will be a fairly long-term process for the penetration rate of home appliances to reach the same level as China, and Transsion cannot eat "big meat" in a short period of time.
Public information shows that at present, only about 1/6 of the national grid coverage rate in Africa is more than 30%, many countries are less than 10%, and sub-Saharan Africa has about 600 million people without electricity, and the imperfection of these infrastructures is restricting the development of the home appliance industry.
This also means that in a short period of time, it is difficult for the 3C accessories and home appliance business to pick up the beam of sound revenue. According to the financial report, in 2020 and the first half of 2021, transsion's other main businesses (including home appliances, 3C accessories, software business) accounted for only 2.9% and 3.6% of the total revenue, respectively.
What's more, in the case of insufficient grid coverage in Africa, the growth rate of 3C accessories and home appliance business itself will be limited to a certain extent.
However, from a long-term point of view, based on the intensive dealer channels, after-sales network and brand reputation established by TRANSSION in Africa, TRANSSION's "African version of millet" still has a lot of room for development to be tapped. The ability to localize is an important competitive advantage.
Recently, the "Global Retail Development Index 2021" released by global consultancy Kearney pointed out that Africa is expected to become the world's next large consumer/retail market. It is foreseeable that with the improvement of the income level and consumption power of African residents, TRANSSION's 3C accessories and home appliance business is expected to continue to grow and develop. With reference to Xiaomi, the product category of "grocery stores" can continue to expand. However, it will be a very long process.
03 Make an African TikTok?
In addition to more than 2,000 dealer customers around the world and 2,000 service outlets (including third-party cooperation outlets) of after-sales service brand Carlcare, TRANSSION also has an important user entrance online - TRANSSION OS.
Around transsion OS, TRANSSION has developed tool applications such as app stores, game centers, advertising distribution platforms and mobile phone butlers, and has also cooperated with domestic Internet companies such as NetEase to develop and incubate mobile Internet products, and this "hard to soft" strategy and monetization method are also quite similar to Xiaomi.
Based on the huge user base, transsion can cooperate with APP manufacturers to pre-install software, advertising implantation, game turnover sharing, and can also divert traffic to its own APP to help the scale of users grow. In other words, while transsion occupies the African mobile phone market, it also uses pre-installed software to occupy the African mobile phone APP market.
According to the financial report, as of the end of the first half of 2021, more than 10 APP monthly active users in the Internet products of TRANSSION layout exceeded 10 million. Among them, Boomplay is currently the largest music streaming platform in Africa, with more than 60 million monthly active users. In terms of short video, TRANSSION's Vskit ranks first in many countries in Africa.
From the experience of China's mobile Internet development, the valuation of Internet giants with super large user scale is much higher than that of hardware companies, and the development space is far greater than that of general hardware companies. Transsion holds a variety of ace APP, which is also an asset that is closely watched by the capital market. If one or two apps become national applications in Africa in the future, transsion's valuation will also be greatly improved.
Perhaps it is precisely because of the huge growth potential and imagination space of the Internet business that Transsion has received the attention of a large number of institutional investors. In December last year and January this year, up to 294 and 183 institutions participated in the research activities of The Voice, including Hillhouse, Gao Yi, Jinglin, Goldman Sachs, UBS, Morgan Stanley and other star institutions.
However, it should also be noted that, on the one hand, TRANSSION is still lacking in software capabilities, and its popular applications are mostly the results of cooperation with Internet companies such as NetEase. When it comes to revenue, the two parties will eventually have to divide the account.
On the other hand, compared with Africa's 1.3 billion population base, tens of millions of monthly live-scale applications are still in the early stages of development, even if they are temporarily ahead, they may not be able to laugh to the end, there is still huge uncertainty.
In addition, due to income levels, most African users are difficult to get used to paying for software in a short period of time, and the penetration rate of smartphones itself is not high (the GSMA predicts that the penetration rate of smartphones in Africa will reach 67% in 2025), and infrastructure construction is lagging behind. These factors will hinder the rapid growth of Internet applications and commercial monetization.
Therefore, TRANSSION's Internet business has room for imagination in the long run, but the short-term uncertainty is stronger.
From the current business structure, transsion's Internet business in 2020 will account for only 0.9% of its revenue, far lower than Apple's 19.59% and Xiaomi's 9.66%, and it is difficult to regard it as a software and hardware integration company when valuation.
04 Write at the end
In January this year, Xiang Hailong, former senior vice president of Baidu and president of search company, officially joined Transsion Holdings to take charge of the Internet business. This is seen as a key signal for TRANSSION to develop its Internet business – the software business is becoming one of the important breakthroughs in the face of fierce competition and slow growth of the mobile phone business.
With the hardware business to become a model of the sea, can we "change from hard to soft" to do a good job in the Internet business and make Africa's Sea and Tiktok?
In the face of the stock price slash and the ceiling of the mobile phone business looming, letting go at this time may be able to kill a new way out.