The handset maker Transsion's revenue and profit both grew at around 30% YoY in 1H 2020 as the pandemic and lockdown drove demand for electronics products in emerging markets.
Is Transsion learning from the experience of Huawei and Xiaomi? Image credit: Transsion
Listed in the China's Star market, the consumer electronics company Transsion (688036:SH) has found its foothold in the African mobile phone market, taking over 50% of the total shipments in 2019. Despite the need to mobilize comparatively fragile economic and medical systems – that showed their best resistance against the pandemic – demand for everyday technology also grew. The company's product sales and stock price both showed strong risk resistance and growth potential, with its total revenue expanding 31.81% year-over-year (read more about Transsion's 2020 interim report). The market cap has grown by over 80% so far in 2020.
Three factors contributed to the company's business growth and the rise in investors' confidence.
First, the growing demand for electronic products in the emerging markets is evident, and the company's established supply chain and strong branding in Africa lead to inherent economies of scale – satisfying the newly added cellphone demand without much extra expense. Besides, as the lockdown policies during the pandemic drove up the demand for remote communication through phones, the revenue from that business went up by 32% year-over-year during the first half of 2020.
Second, resembling Huawei in the Chinese smartphone market, the strong branding and full coverage in target consumer groups bring Transsion both a high market share and high gross margins. Plus, with the market growth in Africa, the company's core product presents a 'cash cow' for financial results with net profit growth at 25% in 1H 2020 and invested capital return rate (ROIC) at 31% in 2019. The company's gross margin of around 30% is also similar to that of Huawei.
Third, learning from Xiaomi's model, Transsion has begun to launch products beyond mobile phones through its accessories brand Oraimo and home appliance brand Syinix. The products cover smart bands, TWS, power banks, TVs and white appliances. During the first half of 2020, the revenue outside its phone business reached nearly CNY 110 million.