More than a decade ago, Transsion Holdings successfully addressed the pain point of photographing people with dark skin tones in Africa, catapulting it to the top position in the African mobile phone market. In recent years, however, Chinese mobile phone manufacturers have aggressively expanded overseas, disrupting Transsion Holdings' "comfort zone." Consequently, the company has had to extend its reach into emerging markets such as South Asia and Latin America, attempting to replicate its growth success in Africa. However, this has proven to be no easy feat, as the company now finds itself in direct competition with brands that have already established a presence in these markets.

At this critical juncture, the company's Chief Financial Officer (CFO) was recently taken into custody by the Dandong Supervision Committee, triggering various speculations in the market.

The secondary market reacted even more directly to this news, with the company's share price plunging by over 8% intraday yesterday, exacerbating existing anxieties.

CFO under investigation

Early yesterday morning, the stock discussion forum of Transsion Holdings (688036.SH) erupted with news that the company's CFO had been taken away by relevant authorities, sparking concerns about the potential impact on the company's position as Africa's leading mobile phone brand.

Amidst the speculations, the company's share price fluctuated significantly. Shortly after the market opened yesterday, the share price plummeted, with the intraday maximum decline exceeding 8%. It gradually narrowed in the afternoon, closing at RMB 77.05, down 4.99%, with a total market value of RMB 87.004 billion.

Yesterday, the company disclosed in an announcement that its CFO, Xiao Yonghui, had been placed under detention and was under investigation by the Zhen'an District Supervision Committee of Dandong City. The company emphasized that this would not have a significant impact on its operations.

There were no prior indications of the incident. On August 28, Xiao Yonghui participated in a company research event attended by 284 institutions and 363 participants.

In early 2014, Xiao Yonghui was appointed CFO of Transsion Holdings, becoming a core executive of the company.

In recent years, Transsion Holdings has enjoyed smooth sailing, and Xiao Yonghui has benefited from the company's growth. In the company's 2022 restricted stock incentive plan, he was awarded 200,000 restricted shares at a price of RMB 48.20 per share. In 2023, his pre-tax salary was RMB 3.8556 million.

As of the first half of this year, Xiao Yonghui had been awarded a total of 392,000 restricted shares.

Xiao Yonghui's professional career can be traced back to Bird Co. Ltd. (600130.SH), where he may have had some connection with the company's chairman, Zhu Zhaojiang.

Public information shows that Zhu Zhaojiang joined Bird Co. Ltd. after graduating from university in 1996 and subsequently worked at Bird Co. Ltd. and Shenzhen Setel Technology before founding Transsion Mobile in 2006.

Comfort zone no longer comfortable

In the first half of this year, Transsion Holdings achieved revenue of RMB 34.558 billion and net profit attributable to shareholders of RMB 2.852 billion, representing year-on-year growth of 38.07% and 35.70%, respectively. Deducting non-recurring items, the net profit was RMB 2.428 billion, up 36.82% year-on-year.

As one of the earliest Chinese mobile phone manufacturers to venture overseas, Transsion Holdings primarily focuses on emerging global markets. The substantial increase in revenue in the first half of 2024 was primarily driven by these emerging markets, as well as product upgrades and overall shipment growth.

According to public data, the company's smartphone shipments in the first and second quarters were 28.6 million and 25.5 million units, respectively, accounting for 10% and 9% of the global smartphone market share, ranking fourth and fifth globally.

Changes in shipment volumes are immediately reflected in revenue.

In the first quarter of 2024, the company's revenue was RMB 17.443 billion and net profit attributable to shareholders was RMB 1.626 billion, representing year-on-year growth of 88.10% and 210.30%, respectively. In the second quarter, revenue was RMB 17.115 billion and net profit attributable to shareholders was RMB 1.226 billion, representing a decrease of 1.88% and 24.60% quarter-on-quarter, respectively.

Market analysts have noted that brands such as vivo and Xiaomi have been rapidly expanding in the ultra-low-end mobile phone market this year, encroaching on Transsion Holdings' "comfort zone."

To counter the intensifying competition in the overseas mobile phone market, the company intensified its market expansion and brand promotion efforts in the first half of the year. During this period, sales and marketing expenses amounted to approximately RMB 2.407 billion, up 42.61% year-on-year. Among these, promotion expenses totaled approximately RMB 1.494 billion, up approximately 59.96% year-on-year.

During this period, the company's profitability declined slightly, with a gross margin of 21.53%, down 2.01 percentage points year-on-year. The company attributed this decline to the impact of implementing new accounting standards.

In its interim report, the company also expressed concern about future profitability, stating that if competition in emerging markets intensifies, it may face a decline in market position and a risk of reduced gross margin levels.

Leading mobile phone brand in Africa

With a deep understanding of the African market, Transsion Holdings launched its first product, the Tecno T780, in 2007. This dual-SIM, dual-standby phone became an instant hit in the African market. The company offers both feature phones and smartphones, with TECNO, itel, and Infinix as its three main brands.

Born for the overseas market, Transsion Holdings has firmly established Africa as its primary market. One well-known anecdote is the development of a beauty mode specifically tailored for African users.

In the CCTV documentary "The Road to Prosperity," the customized beauty mode introduced by Transsion phones in Africa is detailed. This mode addresses the pain point of photographing individuals with dark skin tones in low-light conditions, such as at night or indoors.

Simultaneously, the company successfully tapped into the African market with its multi-SIM, multi-standby operation mode tailored to local carriers, solidifying its position as a top player on the continent.

In 2018, Transsion Holdings held a market share of 48.71% in Africa, earning it the title of "leading mobile phone brand in Africa." Despite increasing competition, the company remains a dominant force in the region.

In the first half of 2024, Transsion Holdings maintained its top position in the African smartphone market with a market share exceeding 40%, double that of Samsung.

However, as Chinese mobile phone manufacturers such as Xiaomi, vivo, and OPPO expand into Africa, Transsion Holdings' market position is facing challenges.

From 2020 to 2023, the company's revenue in Africa was RMB 22.452 billion, RMB 24.238 billion, RMB 20.633 billion, and RMB 22.064 billion, respectively, representing year-on-year growth rates of 18.14%, 7.95%, -14.87%, and 6.94%.

In response, Transsion Holdings has accelerated its penetration into other emerging markets, aiming to replicate its success in Africa.

The company disclosed that in the first half of this year, it established factories in countries such as Ethiopia, India, and Bangladesh. Globally, it has over 2,000 after-sales service outlets (including third-party partners), achieving a strategic layout covering Africa, South Asia, Southeast Asia, the Middle East, and Latin America.

According to IDC rankings, Transsion Holdings ranked first in smartphone market share in Pakistan and Bangladesh in the first half of 2024, and seventh in India.