“Investors Network” Xie Yingjie

Following market rumors that Honor plans to go public behind the scenes, Tianyin Communications Holdings Co., Ltd. (hereinafter referred to as “Tianyin Holdings” ,000829.SZ) has recently been once again exposed under magnesium light.

“The description that Honor terminals may have gone public under the auspices of the Company does not match the facts.” Despite issuing a clarification announcement, Tianyin Holdings experienced a wave of sharp market growth, with a cumulative increase of about 60% over the past month. The latest stock price has reached around 12 yuan/share.

Going back, the stock hovered at a high of around 25 yuan/share for a long time in the second half of 2021, but in the past two years, the stock price has rarely exceeded 20 yuan/share. Behind the ups and downs of the secondary market is that the growth dividends of smartphones in domestic and overseas markets are gradually disappearing, the profit margins of downstream channel providers have also begun to be continuously compressed, and the competitive environment within the industry has become more intense.

As a leading domestic distribution leader, Tianyin Holdings is not satisfied with being ranked as an agent at the end of the industrial chain. Instead, it chose to expand upstream to gain new business growth points. Up to now, it has developed into a group company spanning the three major industries of communications, retail e-commerce, and lottery.

Refute rumours of glory and backdoor rumors

Tianyin Holdings disclosed a clarification announcement on November 21, stating that the report's description that Honor Terminal may go public behind the company's back does not match the facts. It has been confirmed with the controlling shareholders that the company and the controlling shareholder Shenzhen Investment Holdings Co., Ltd. have no plans for the above rumours or other important matters that should not be disclosed.

At the same time as issuing the above announcement, Tianyin Holdings stated that its wholly-owned subsidiary Tianyin Communications Co., Ltd. is an indirect shareholder of Honor Terminal and holds 19.36% of the shares in Shenzhen Star League Information Technology Partnership, a shareholder of Honor Terminal.

According to enterprise survey data, in November 2020, Huawei sold business assets related to the Honor brand to Shenzhen Zhixin New Information Technology Co., Ltd., which was jointly invested and established by Shenzhen Smart City Technology Development Group and more than 30 Honor agents and dealers. Shenzhen Star League is one of the funders.

However, the stock price of Tianyin Holdings rose even after the rumor was refuted. The cumulative increase from October 25 to December 1 was over 60%. As of November 30, the closing report was 12.30 yuan/share, with a total market value of 12.6 billion yuan.

The market frequently speculates that the two companies have a certain equity relationship. The actual controller of Tianyin Holdings is the Shenzhen State-owned Assets Administration Commission, and one of Honor's shareholders is also Shenzhen's state-owned assets.

Furthermore, Tianyin Holdings is both Honor's channel provider and Huawei's core agent. It has not only opened a number of Honor mobile after-sales stores, but also 1,500 Huawei authorized experience stores.

Businesses complement each other and shareholders overlap. Tianyin Holdings also has its own mobile phone brand, WIKO, which officially released the first Hongmeng ecological smartphone, WIKO 5G, last year.

However, at present, mainstream mobile phone brands have many loyal fans, and the market is not interested in small brands like WIKO. Taking the WIKO Tmall flagship store data as an example, the overall sales volume of mobile phones is 12 orders, and there are only 3 consumer reviews.

Profitability needs to be repaired

Similar to the latest trend, Tianyin Holdings staged a major market shock in September 2021. The announcement at the time showed that the company was planning to participate in a joint acquisition of a mobile phone brand business. The scope of the acquisition was intended to cover brand trademarks, R&D, supply chain, etc., and the project was in the early stages of discussion and planning.

As a result, rumors appeared in the market that Tianyin Holdings wanted to acquire the Honor brand. Tianyin Holdings immediately received a letter of concern from the Shenzhen Stock Exchange, requesting clarification on whether there were any information leaks or insider trading, whether it was related to shareholders' holdings reduction plans, etc.

Behind the fluctuations in stock prices is the gradual loss of smartphone growth dividends in domestic and overseas markets. The market is shifting from the blue ocean to the red sea, and the profit margins of downstream channel providers have also begun to be continuously compressed, and the competitive environment within the industry has become more intense.

From 2018 to 2022, Tianyin Holdings had operating income of 42.47 billion yuan, 52.94 billion yuan, 59.78 billion yuan, 71 billion yuan, and 76.43 billion yuan respectively. The net profit for the same period was -231 million yuan, 5069 million yuan, 186 million yuan, 207 million yuan and 110 million yuan respectively.

The company's revenue for the first three quarters of this year was 69.307 billion yuan, up 31.29% year on year; net profit was 129 million yuan, up 4.70% year on year.

In terms of profitability, under the influence of factors such as high inflation, the company's industry faced increased product sales costs, combined with changes in product portfolio, and a decline in new business. Gross margin was also being squeezed. From 2018 to 2022 and the first three quarters of this year, gross margin was also being squeezed. From 2018 to 2022 and the first three quarters of this year, it was at a low level of 3.31%, 3.72%, 2.86%, 3.32%, 3.55% and 2.77%, respectively.

Currently, sales of communication products are still the core basic market of Tianyin Holdings, accounting for more than 80% of long-term revenue. However, while driving a high increase in the company's revenue, this business also limited the company's profit growth. The gross margin of this business was not higher than 5% in the last five reporting periods, and fell to 2.3% in the first half of the year.

In addition to pressure on profitability, Tianyin Holdings is also involved in a lawsuit this year. Since a loan was not repaid, Tianfujin, the second-largest shareholder, received a court summons in May this year. According to the first instance ruling, Tianfujin repaid the principal and interest of the Central Plains Trust Loans totaling 1,647 billion yuan, and Chairman Huang Shaowen bears joint and several liability for settlement.

Then, in August of this year, Tianyin Holdings disclosed a fixed increase plan. The company plans to raise no more than 2.5 billion yuan in additional capital for seven major projects, including domestic and overseas marketing network construction, digital platform construction, and lottery research and development and industrialization.

The company stated in the fixed increase announcement that under extreme circumstances, there is a risk that Huang Shaowen's inability to repay large debts will affect his eligibility for employment, which may adversely affect the company's future operations.

The future still faces uncertainty

For Tianyin Holdings, whether it can grow steadily is quite important, but there seems little hope of relying on its main business alone.

Canalys, an independent technology market analyst agency, predicts that after the global smartphone market experienced a sharp decline of 12% in 2022, shipments are still expected to drop by 5% in 2023.

This also means that as terminal consumer electronics enters an era of stock competition, the path forward for Tianyin Holdings is becoming more and more difficult. Under the influence of the declining scale of the industry, it is urgent to break through the low-dimensional and vicious competitive environment, enhance the industry's voice, and transformation and upgrading measures.

In recent years, Tianyin Holdings has continued to expand its business boundaries. In order to reduce its dependence on mobile phone sales business, for example, the company joined the Huawei NEV sales system and continued to lay out the car sales business in offline physical stores.

It is worth noting that Tianyin Holdings acquired Shanghai Nengliang E-commerce, Tmall's TOP3 mobile phone online retailer in 2018, and is becoming Tianyin Holdings' second growth curve.

Currently, Tianyin Holdings' retail e-commerce business is the fastest growing among all business segments, and it already accounts for more than 10% of revenue. The e-commerce business achieved sales revenue of 9.487 billion yuan in the first half of 2023, an increase of 77% over the previous year.

Behind the impressive performance of the new business is the low gross profit brought about by the lack of pricing power, which is still not recognized enough in the market. As online dividends peaked and customer unit prices rose, the gross margin of retail e-commerce fell 1.79 percentage points to 3.59%.

Looking at the above, Tianyin Holdings is still in its infancy in various fields. It still has a long way to go in order to achieve large-scale profits, and is still facing uncertainty.

There are many opinions in the market about Tianyin Holdings' transformation strategy. There are opinions that the company is involved in too many fields and may face great uncertainty. If the growth rate of the industry slows down and market competition intensifies, the company's gross margin may continue to decline, and there is a risk that revenue will not increase.

There are also research institutions that are optimistic about the company's development strategy. According to the latest research report from Orient Wealth Securities, the company is actively developing diversified strategies, cooperating with Huawei to sell new energy vehicles, and merging and acquiring WIKO mobile phones in upstream brand layout to seize opportunities in the e-commerce sector to open up growth space. It is estimated that the company's revenue for 2023-2025 will be 969.38/1106.35/129.527 billion yuan, respectively, and net profit from the mother will be 3.07/5.76/809 million yuan, respectively. (Produced by Thinking Finance) ■