Transsion sees 732% net profit increase, but not from selling phones

Profit increase related to foreign currency futures.

Photo: Tuchong

Shenzhen-based smartphone maker Transsion reported RMB 16.9 billion (USD 2.4 billion) in total revenues in the first three quarters of this year, up 6.7% year-on-year. It also raked in RMB 1.3 billion (USD 184 million) in net profits, up 732% year-on-year, according to its filing with the Shanghai Stock Exchange (SSE) on Wednesday.

The company, which has never sold phones in its home country but instead in Africa and India, did not specify the reason for the huge profit increase in its filing. Instead, it dismissed the potential effect on its operations from its ongoing lawsuit with Huawei, which sued it for RMB 20 million in compensation for alleged copyright violation. This is partly because the sum only accounted for 0.19% of Transsion’s revenue in the first half of 2019.

However, in its initial public offering (IPO) prospectus that came into effect on September 25, Transsion predicted that its first three quarters net profit would reach between RMB 1.2 billion and RMB 1.3 billion, up between 676.9% year-on-year and 763% year-on-year. It added that the huge profit increase was due to losses in the first three quarters of 2018 but gains in the same time frame in 2019 incurred by foreign currency futures. The company has started to purchase futures since early 2018 to hedge against US dollar fluctuation risks.

The company said the futures incurred a RMB 7 billion loss for January to September 2018, but a RMB 1 billion gain for the same period in 2019. It also stated then that deducting these one-off items, net profit increase was “rather small”, without providing further information.

Transsion raised RMB 2.67 billion (USD 378 million) in net proceeds from the IPO. Earlier this month, the company aroused public scrutiny as it disclosed that it planned to manage up to RMB 2.5 billion cash by investing it in financial products such as fixed-term deposits.

The company disclosed on Wednesday in another filing that it has signed three-party deposit and four-party supervision agreements on the IPO funds to ensure that all will be used on projects as planned in the IPO.

Transsion sells phones under the brands Tecno, itel and Infinix in more than 70 countries in Africa, South Asia, Southeast Asia and South America, according to its IPO prospectus.

It sold a total of 124 million phones in 2018, holding a 48.7% market share in Africa, ranking as the top vendor in the continent. It has a 6.7% share in Indian phone market, ranking fourth, Transsion said in the prospectus, citing data from market research company IDC.