This mobile phone brand made 60 billion in Africa in a year?

BT Finance

2024-05-05 07:00Posted on the official account of BT Finance in Beijing

This mobile phone brand made 60 billion in Africa in a year?

Transsion mobile phones are killing all sides in the African market.

The global mobile phone market has just fallen to the bottom of nearly a decade. According to data from the International Data Corporation (IDC), the total global shipments of smartphones in 2023 will be 1.17 billion units, down 3.2% year-on-year.

But a dark horse also ran out in the cold winter. IDC data shows that in 2023, a Chinese company's shipments will increase by 30.8% year-on-year, winning 8.1% of the global smartphone share, ranking fifth after Samsung, Apple, Xiaomi, and OPPO. In the first quarter of 2024, the company went one step further to fourth place, completing the overtaking of OPPO.

It is Transsion Holdings (688036.SH) that ignores the decline of the industry, the strong growth against the headwinds, and the momentum of "jumping out of the three realms and not in the five elements". At this rate, not only is it expected to catch up with Xiaomi in sales, but it also seems that it is not a fool's dream to surpass Huawei in terms of brand and technology.

How did this mobile phone brand, which has little presence in domestic sales, become a big dark horse that is bound to "catch up with Mi Chaohua"?

Where did the "King of African Mobile Phones" come from?

Although the story of the "fighter in the mobile phone" waveguide has come to an end, the related business story is still being written.

Zhu Zhaojiang, the founder of Transsion Holdings, used to be the sales manager of Bird Mobile Phones. According to the "Science and Technology Innovation Board Daily" of the Financial Associated Press, Zhu Zhaojiang joined the company in the period of market transition from pager to mobile phone, and also the stage when Bird was gaining momentum.

Looking back now, these experiences laid the groundwork for Transsion Holdings' overseas success.

In 2006, the old club declined, Zhu Zhaojiang set up his own portal, and Transsion Company was born. Zhu Zhaojiang has set his sights on overseas markets almost from the very beginning.

The past few years of market development in Africa have also been the time for Transsion Holdings to combine local characteristics and do in-depth localization. According to the "21st Century Business Review", Zhu Zhaojiang has insisted on being a brand from the beginning, taking a formal path to distribute goods, "doing solid channels, not pursuing quick success and outbreaks".

In the upstream of production, Zhu Zhaojiang has improved overseas production lines, and set up factories in Ethiopia, India, Bangladesh and other countries to build diversified production lines. Invest and provide jobs locally, and put down roots in unfamiliar markets.

In the downstream of products and sales, in order to cater to the preferences of local consumers, TRANSSION has also made detailed adjustments.

For example, in the African communications market, there are problems of poor signals and many operators, and Transsion has evolved the domestic "dual SIM dual standby" into the local "four SIM and four standby" to facilitate users to switch between multiple signals. In Africa, for example, the company has launched a "beautifying" feature that is more suitable for darker skin, showing the beauty of the skin tones of local residents.

In addition, we can overcome the problem of sweaty palms affecting the durability of mobile phones, and provide music services that suit local tastes...... Transsion's meticulous cultivation in Africa has now become a model case for Chinese enterprises to study overseas and localize.

At present, Transsion has formed three major brands of mobile phones in the African market: TECNO, Infinix and itel, facing different types of customers. In recent years, it has also explored the potential of digital accessories, home appliance brands and other fields on the basis of the mobile phone business, and expanded its business territory.

At a time when the global share ranking is climbing, its performance table also reveals good news. But Transsion Holdings' performance in the investment market surprised everyone.

The performance increased high, but the stock price suddenly exploded

On April 23 (Tuesday) and April 25 (Thursday), Transsion Holdings successively released its 2023 annual report and 2024 first quarter report.

For the whole year of 2023, Transsion Holdings achieved revenue of 62.295 billion yuan, a year-on-year increase of 33.69%, and net profit attributable to the parent company of 5.537 billion yuan, a year-on-year increase of 122.93%.

This high growth momentum will also continue into the first quarter of 2024. The revenue for the quarter was 17.443 billion yuan, a year-on-year increase of 88.10%, and the net profit attributable to the parent company was 1.626 billion yuan, a year-on-year growth rate of 210.30%. Debang Securities pointed out in a research report published on April 28 that from the latest two performance reports, Transsion Holdings' revenue and profit have increased significantly, and profitability has continued to rise.

One of the few flaws was a slight fluctuation in the company's gross profit margin in the first quarter. The above report pointed out that in 2023, the gross profit margin and net profit margin of Transsion Holdings will be 24.45% and 8.97% respectively, an increase of 3.13 and 3.68 percentage points year-on-year, respectively. In the first quarter of 2024, the company's gross profit margin and net profit margin will be 22.15% and 9.37%, with the former declining by 1.21 percentage points year-on-year and the latter maintaining an upward trend.

What the market did not expect was that the share price of Transsion Holdings, which released beautiful results, fell by 10.88% on April 25, with the latest market value of about 117.1 billion yuan, a sharp evaporation of 14.3 billion yuan in one day.

What is the reason behind the untimely stock price explosion? According to the "V View Financial Report" of Zhongxin Jingwei, some investors believe that the sharp fall is a "wrongful killing", but some people also point out that the profit taking of institutions after the disclosure of results may be one of the reasons.

With the improvement of performance, Transsion Holdings' share price has been rising since the end of 2022, rebounding strongly from the lowest point of 50.92 yuan to nearly 180 yuan in mid-April 2024. Starting from mid-2023, the National Social Security Fund will begin to reduce its holdings in Transsion Holdings. In addition, comparing the top 10 shareholders in 2023 and the first quarter of 2024, it can be found that some exchange-traded open-ended index securities investment funds and other funders have also reduced their holdings in Transsion Holdings.

The market is also looking back at a large equity deal in 2023. At that time, Yuanke Fund, the second largest shareholder of Transsion Holdings, transferred 6.34% of the total share capital to CLSA at a total price of 5.475 billion yuan. Compared with the purchase price of 107.10 yuan, today's stock price still brings a relatively rich floating profit to the receiver.

According to the China Times, Bai Wenxi, chief economist of IPG, believes that from a quarter-on-quarter perspective, Transsion Holdings' performance growth in the first quarter of 2024 has declined, which may indicate a slowdown in growth momentum, which in turn will affect investor confidence.

During the same period, Transsion Holdings' generous dividends also attracted market attention.

According to China Fund News, Transsion Holdings intends to distribute a cash dividend of RMB 30 (tax included) to all shareholders for every 10 shares, and at the same time convert 10 shares into 4 shares. According to this calculation, the company's cash dividend at the end of the year will reach 2.42 billion yuan. Coupled with the 2.42 billion yuan that has been distributed in the third quarter, the annual dividend amount reached 4.84 billion yuan - such a scale almost divides its annual non-net profit.

Transsion Holdings is also a relatively concentrated enterprise. Tianyancha data shows that Shenzhen Transsion Investment Co., Ltd. holds 50.64% of the shares in Transsion Holdings, and another major shareholder, Xinyu Chuan Jiali Enterprise Management Partnership (Limited Partnership), holds 5.49% of the shares. The founder, Zhu Zhaojiang, holds shares and ranks as a partner in these two major shareholder companies.

Indicators such as expenses, inventory, etc., flash red

Analyzing the two latest financial reports released by Transsion Holdings, it can also be found that some indicators have flashing red lights.

The first is that marketing expenses are still high.

According to the 2023 annual report, the sales expenses of the year increased from 3.622 billion yuan in 2022 to 4.893 billion yuan in 2023, a significant increase of 35.07% year-on-year. The company explained that this is due to increased market development and brand promotion. It is also easy for investors to compare and find that the company's revenue growth rate is not as fast as the growth rate of sales expenses.

This was followed by a spike in inventory indicators.

In 2023, Transsion Holdings' production, sales and inventory will record 201 million units, 194 million units and 19.4726 million units, respectively, with the former two increasing by 28.51% and 24.23% year-on-year compared with 2022, but the inventory volume increasing by 53.57% year-on-year.

The asset-liability index also shows that the company's inventory value will rise to 10.443 billion yuan at the end of 2023, a year-on-year increase of 71.66%, accounting for 22.64% of total assets. According to the company, this is mainly due to the increase in inventory required for normal business turnover to meet demand as the scale of sales expands.

The third is that R&D funding is not as good as that of peers.

In 2023, Transsion Holdings' R&D investment will decline from 4.46% in 2022 to 3.62%, a decrease of 0.84 percentage points. The expensed R&D investment in the year was 2.256 billion yuan. Debang Securities' research report on April 28 believes that the decline in the R&D expense rate of Transsion Holdings is mainly due to the fact that the growth rate of revenue is higher than the growth rate of R&D expenses. The organization also recognized that Transsion Holdings has continued to strengthen its R&D investment in mobile phone products and mobile Internet.

How does the annual R&D investment of 2.256 billion yuan compare with its peers? Among the objects of "catching up with Mi Chaohua", Huawei will be as high as 164.7 billion yuan in 2023, and Xiaomi's R&D expenditure will also be as high as nearly 20 billion yuan. However, Huawei's R&D expenses in 2023 will account for 23.4% of revenue, which is also much higher than Transsion.

OPPO, which has been "left behind" by Transsion, has announced that the total investment in R&D from 2020 to 2022 will reach 50 billion yuan. When the flagship model was released in 2023, the company's executives also revealed that the annual expenditure on image research and development alone exceeded 1 billion yuan - from this point of view, Transsion Holdings' R&D investment still has room for growth.

Low-end positioning restricts profitability

Although Transsion Holdings' three mobile phone brands, TECNO, itel and Infinix, cover multiple consumption levels from mid-to-high-end to cost-effective in terms of product positioning, the market generally believes that in combination with the consumption power of the African market, Transsion mobile phones have not yet removed the label of low-end, which will restrict its profitability.

According to the "21st Century Business Herald", some mobile phone industry analysts said that the relatively low-profit market abandoned by brands such as Xiaomi in the past was seized by Transsion to seize the opportunity, thereby boosting its share growth.

Not high-end, means not making money. The mobile phone manufacturing industry has a significant "high-end profit" characteristics. According to data from Counterpoint Research, a market research organization, Apple, which firmly occupies the mid-to-high-end mobile phone market with iPhones, has earned eighty percent or more of the industry's profits. In such an industry context, Transsion Holdings, which still has a revenue of 5.942 billion yuan in 2023 from feature machines, is the only way to go if it wants to continue to make breakthroughs in profitability.

Fortunately, Transsion Holdings has realized this. According to the analysis of the research report published by SDIC Securities on April 25, in 2023, Transsion Holdings will release new technologies such as explorer satellite communication, scroll screen concept mobile phones, and full-scene fast charging to enhance the competitiveness of mid-to-high-end products. In addition, in terms of multi-skin color imaging technology and portrait gold standard evaluation system mentioned above, TRANSSION is also constantly exploring its advantages.

For hot concepts such as artificial intelligence and AI mobile phones, Transsion Holdings is following up the pace. According to the analysis of the research report published by Soochow Securities on April 26, the company continues to iterate on imaging technology and integrate the AIGC concept function into it. In addition, at the 2024MWC (Mobile World Congress) press conference, Transsion also launched an AI assistant under the TECNO brand to optimize the user experience. In view of the high traffic cost and network instability in the main market, the company has independently developed and optimized technologies such as traffic saving, weak network connection, and minority language recognition.

In terms of opening up categories other than mobile phones, Transsion Holdings is also diversifying its layout, intending to find new growth points. The company's key areas include smart home, mobile phone value-added services, mobile phone + peripheral equipment ecological chain, etc.

It is worth affirming that Transsion Holdings, as a telecommunications company with significant growth in the global market, especially in Africa, has achieved remarkable steady growth in recent years. However, the market's expectation for Transsion Holdings is not only the growth of sales, but also the improvement of its technological innovation capabilities and the enhancement of its influence in the global communications industry.

In the future, whether Transsion Holdings can achieve sustainable business development and repay shareholders' support with better performance still needs to go up step by step on the road of solid R&D investment and high-end.

Author | Han

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