Transsion closes in on Xiaomi, Oppo with developing-market focus

The Shanghai-listed company’s stock has jumped 73% this year as it consolidates its position as the leading smartphone seller in Africa

• Transsion’s smartphone shipments rose 35% in the second quarter, making it one of the world’s top five smartphone makers for a second consecutive quarter
• The company’s Shanghai-listed shares have quadrupled since its 2019 IPO, and are available to international investors via the Shanghai-Hong Kong Stock Connect program

By Doug Young

Move over, Xioami, Oppo and Vivo.

There’s another new hotshot on the China smartphone scene, Shenzhen Transsion Holdings Co. Ltd. (688036.SH), which burst into global headlines last week with its second consecutive appearance among the world’s top-five smartphone sellers in the third quarter. Transsion achieved the feat by posting a 35% year-on-year increase in its third-quarter smartphone shipments, which totaled 26 million for the three-month period, according to IDC.

Such big gains were quite common for Chinese rivals Xiaomi (1810.HK), Oppo and Vivo a few years ago when that trio was on the rise. But all three have seen their sales stagnate recently, or even plunge in Xiaomi’s case, partly due to difficulties they faced in India. Among the global top five, Oppo and Samsung (005930.KS) reported small declines in the third quarter, while Xiaomi and Apple (AAPL.US) reported small gains of 2.4% and 2.5%, respectively.

Transsion has achieved its success by focusing squarely on developing markets and is noteworthy for its status as the top seller in Africa with nearly half of the market, according to IDC. Its three main brands are Tecno, Itel and Infinix, and it focuses on cheaper models typically costing around $200. The company’s models are also noteworthy for their features that cater to users in specific developing markets, said Will Wong, a smartphone analyst at IDC.

“Transsion is being called the King of Africa as it has a very successful product strategy that is dedicated to the local consumers,” said Wong. “For example, it has a beautification camera for consumers with darker skin. And another interesting feature is the AI smart body function which can make the user’s body shape look better.”

Transsion’s soaring sales – and profits – have also been good tonic for its stock, which was one of the first listed on Shanghai’s Nasdaq-style STAR Market in 2019. The company was the market’s second-largest listing at the time of its IPO, raising 2.8 billion yuan ($383 million) by selling shares for 35.15 yuan.

Since then the stock has risen nearly fourfold to its latest close of 133.11 yuan on Friday, including a 73% rise this year alone. That gain looks particularly impressive when one considers the dismal state of Chinese markets, including a 3% decline for the Shanghai Composite Index this year, and an even larger 14% drop for Hong Kong’s Hang Seng Index.

Transsion’s market value now stands at 107 billion yuan, or about a third of Xiaomi’s HK$344 billion ($44 billion). Transsion’s latest price-to-earnings (P/E) ratio of 26 also trails Xiaomi’s 33 and a 28 for Apple.

That implies Transsion’s stock still has some good upside potential. While the stock is traded on China’s domestic A-shares market, it’s also available to international investors via the Shanghai-Hong Kong Stock Connect program.

Developing market leader 

In terms of its sales footprint, Transsion really does look like the closest thing out there to a pure play focused on developing markets. The company currently gets about half of its sales from the Middle East and Africa. Another 30% comes from Asia, excluding China and Japan, with India as the largest contributor, accounting for nearly half of its sales in the region.

That’s an important factor to note, since most of China’s major smartphone makers have encountered strong headwinds in India lately. Most have been accused of tax evasion, and Vivo has even recently come under fire over government allegations of visa violations and spying. Transsion has yet to crack the top five brands in India yet, though that seems like just a matter of time.

Interestingly, Transsion has yet to dive into China, despite its base in the Southern high-tech boomtown of Shenzhen across the border from Hong Kong. Its avoidance of the market – the world’s largest – probably owes to the incredibly stiff competition there.

Transsion’s revenue growth has been accelerating recently, including a 39% jump in the third quarter to about 18 billion yuan. That’s well above the 8% growth rate for the half of the year. Here we should note that at least some of the growth is probably coming from recent declines in China’s currency, the yuan, since Transsion’s revenues are nearly all recorded outside the country in other currencies, even though its results are reported in yuan.

Still, the 39% third-quarter revenue increase is roughly in line with Transsion’s 35% shipment growth reported by IDC for the period, showing the rising revenue is indeed related to rising sales.

As its sales grow, Transsion’s profits are growing even more quickly. The company’s profit roughly tripled to 1.78 billion yuan in the third quarter, again representing a sharp acceleration from the 27% profit growth it recorded in the first half of the year.

Transsion still has a ways to go to catch up with Xiaomi. Transsion’s revenue in the first half of the year totaled 25 billion yuan, or less than half the 67 billion yuan for Xiaomi in the same period. But Transsion is quickly closing the gap with its recent rapid revenue growth. By comparison, Xiaomi’s revenue actually contracted 4% in the first half of the year.

Transsion’s biggest drawback looks like its position focused squarely on developing markets with low-end models. When you exclude China, which accounted for 22% of the global smartphone market in the third quarter, and other major markets like the U.S. and Western Europe, Transsion could be close to the saturation point in the markets where it currently sells.

Wong said about 90% of Transsion’s current shipments come from low-end models, but it’s possible it may start to move into higher-priced ones as well. He noted the company has recently moved into higher-end foldable models as part of that effort. At the end of the day, Transsion certainly looks like a company to watch due to its rapid growth. But that growth could also be nearing its limits unless it can diversify beyond developing markets and into higher-end models.

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