Image source: Visual China

Interface News Reporter Zhang Yi

"The King of African Mobile Phones" Transonic Holdings (688036.SH) has swept away the decline of the past year and returned to the growth track.

On the evening of July 26, the first-half performance forecast of Transsion Holdings showed that the company expects to achieve operating income of 25.029 billion yuan in the first half of 2023, a year-on-year increase of 8.31; of which, the second quarter is expected to achieve operating income of 15.756 billion yuan, a year-on-year increase of 30.72.%.

in early trading on July 27, the share price of transmission holdings fell slightly after opening higher.

At the same time, Transsion Holdings expects to achieve a net profit of 2.102 billion yuan attributable to the owners of the parent company in the first half of 2023, an increase of 27.10 percent over the same period last year, of which the net profit attributable to the parent company in the second quarter is expected to be 1.577 billion yuan, an increase of 83.87 percent over the same period last year.

This is a semi-annual report that exceeds market expectations. The above data shows:

As a result, Transsion Holdings ended a year and quarter of revenue and profit decline and returned to a positive growth track.

Secondly, the company's net profit growth is more than 50 percentage points higher than the revenue growth, which also means that the company's gross profit margin and net profit margin are improving significantly.

for the first time in the past three years, the company's single-quarter revenue exceeded 15 billion yuan, reaching a new high. The net profit returned to the parent in a single quarter exceeded 1.5 billion yuan, up 200 month on month. The previous peak in a single quarter was only 1.15 billion yuan. At the same time, the net profit of non-returning parents was 1.468 billion yuan in a single quarter, which had never passed the 1 billion yuan mark before.

So, has the performance of Transsion Holdings confirmed an upward inflection point?

Transsion Holdings' quarterly revenue performance Source: WIND

Business outside mobile phones or growing

As for the reasons for the revenue growth, Chuanyin Holdings said that the company continued to explore emerging markets and promote product upgrades, and overall shipments increased. The net profit growth benefited from the upgrading of product structure and cost optimization, and the company's gross profit margin increased.

In fact, from a global perspective, the smartphone industry has not shown a recovery trend.

The latest research by the International Research Institute Counterpoin shows that in the second quarter of 2023, the global smartphone market sales fell 8% year-on-year and 5% month-on-month, showing a year-on-year decline for eight consecutive quarters.

However, the main position of Transmit Holdings is in Africa. This is the area with the smaller decline shown in the Counterpoin report.

the main products of transmission holding include TECNO, itel and Infinix mobile phones, including functional phones and smart phones. The main business is concentrated in emerging market countries such as Africa, South Asia, and Southeast Asia, especially in Africa, where the smartphone market accounts for more than 40%.

according to IDC data statistics, in 2022, transmission holdings will have a 11.7 share of the global mobile phone market, ranking third among global mobile phone brand manufacturers, of which smartphones will have a 6.0 share of the global smartphone market, ranking sixth.

under the full competition, although the position of the African mobile phone hegemon of transmission holdings in recent years has not been shaken, its share has been eroded. At its peak, it once occupied 57% of the market share in Africa.

Revenue from Africa fell for the first time last year. Transmitter Holdings' revenue in this region is 20.633 billion yuan in 2022, about 3.6 billion yuan less than in 2021 and even lower than the level in 2020.

In desperation, Transsion Holdings wants to grow its business outside of Africa and outside of mobile phones. The probability of revenue growth in the first half of this year comes from this.

Transonic Holdings said that the company's overall smartphone sales in markets outside Africa and South Asia increased year-on-year.

"In the future, the company will combine the actual situation of the target market and the company's target selection of key markets to make breakthroughs." In the survey, the voice of the holding executives said so.

in terms of category expansion, transmission holdings has long been aware of the limitations of the development of a single mobile phone business and will implement a diversified strategic layout in 2019. Now it is positioned as the business ecological model of "mobile phone + mobile internet service + home appliances and digital accessories.

Chuanyin Holdings founded the digital accessory brand oraimo, the household appliance brand Syinix, and the after-sales service brand Carlcare, etc., and developed intelligent terminal operating systems such as HiOS, itelOS and XOS and independent application software platforms.

"Compared to other regions, the African market has a unique advantage in developing mobile Internet services." Transsion Holdings believes that, first of all, Africa has skipped the PC era and entered the mobile Internet era directly, and startups have a lot to do. Secondly, the average age of the African population is very young, and in the process of urbanization, the market's acceptance of new things and willingness to pay is growing rapidly. Third, the general trend of conversion from functional machines to smart machines in Africa has brought the possibility of cross-level efficiency improvement to many industries.

In terms of home appliance business, Transsion Holdings believes that the African region is still in a stage of development with a low penetration rate of home appliances, and there is a large market space in the future. Its team, after-sales and sales channels can help the home appliance business.

However, last year's annual report showed that the four-year layout had little effect. In 2022, its mobile phone business still accounts for more than 90% of revenue, while other businesses account for less than 8%.

in the first half of this year, whether the proportion of business revenue other than mobile phones can make a breakthrough still needs to wait for the specific data of the semi annual report to be released.

Smart machines drive up gross margin

One of the problems with expanding outside Africa is the decline in gross margins. But this trend reversed in the second quarter of this year.

Gross margin in Africa was 27.63 per cent last year, outpacing Asia and other regions (16.23 per cent) by as much as 11 percentage points, according to the 2022 annual report.

"In recent years, the proportion of revenue in regions outside Africa has gradually increased, and the overall gross profit margin in regions outside Africa is lower than that in Africa. Therefore, changes in the revenue structure will cause certain downward pressure on the company's overall gross profit margin." Transsion Holdings executives have pointed out in a survey.

The switch from functional machines to smart machines was one of the reasons for the increase in gross profit margin in the second quarter.

In a survey conducted by investors during June, executives of Transsion Holdings stated that the penetration rate of smartphones in emerging market countries is relatively low compared to North America, Western Europe, mature Asia-Pacific developed economies and Chinese markets, and functional machine-for-machine is still An important factor driving the growth of the smartphone market in emerging markets.

In addition, the price reduction of raw materials such as upstream chips has also substantially improved the profits of Transsion Holdings.

However, the interface news found that if we continue to convert the share of functional machines into smart machines to increase gross profit margin, it will be more and more difficult.

in 2016, the revenue of transmission holding smart machines accounted for 57.93, while the revenue of functional machines accounted for 31.63. By the first half of 2022, smartphone revenue has risen to more than 80%, and the proportion of functional machines has dropped to 11.86.

there is little room for the proportion of functional machines to decline.

In terms of inventory, Transmission Holdings may improve in its semi-annual report and drop to normal levels.

In addition, exchange rate fluctuations in the first half of the year also favored Transsion Holdings. The company's overseas sales are mainly settled in foreign currencies such as US dollars, while the RMB depreciated by 3.75 against the US dollar in the first half of this year.

Throughout the year, institutions remained optimistic about Transsion Holdings.

Debang Securities Research Report believes that Transsion Holding Mobile Phone is expected to continue to grow and AI will open up room for growth. With the deepening of the new machine cycle, the proportion of high-spec and high value-added models further increases to increase profit margins, and under the AI wave, the company is expected to fully benefit from the industry growth brought about by AI based on hardware entry. It expects the company's net profit to reach 4.69 billion yuan this year.

Meanwhile, Transsion Holdings is still expanding into mid-to-high-end smartphones. During the Shanghai World Mobile Communications Conference (MWC) 2023, the company released the first folding screen product Phantom V Fold, and released a number of new AIoT products including notebook computers, smart wearable devices, smart audio products, smart home devices, etc.

"We expect the smartphone market to recover slowly in the coming quarters." Counterpoin said.

In the secondary market, the closing price of Transsion Holdings on July 26 was 125.70 yuan per share, which has doubled from the lower level, and the market value has returned to 100 billion yuan. However, it is still twice as far from the all-time high of $257.56 per share (former recovery) in February 2021.