BEIJING, November 24 (TMTPOST) – Shenzhen-based phone maker Honor has announced that Wu Hui would be the company's director and chairman, while the former chairman, Wan Biao, would assume the role of vice chairman. Meanwhile, Honor would go public through an initial public offering (IPO), denying the previous rumors of a "backdoor listing."

According to the announcement, to serve the company's next-stage strategic development, Honor would continuously optimize the equity structure, attract diversified capital, and go public through an IPO. As the company progresses towards the public market, the board of directors will gradually adjust in accordance with the standards of a listed company, diversifying its board members to meet governance and regulatory needs. 

Once hyped "shell company stocks"

After spinning off from Huawei on November 17, 2020, Honor was taken over by multiple state-owned enterprises in Shenzhen and over 30 Honor distributors. It is predominantly held by state assets for over 90%, with the remaining portion held by channel distributors and Honor employees. Huawei no longer holds any shares in Honor. Subsequently, multiple reports suggest that Honor had a performance-based agreement with the acquiring entity, necessitating the company's listing after three years. Meanwhile, rumors of Honor’s listing through reverse takeover caused significant increases in the stock prices of several listed companies.

For example, in August 2021, Bird was rumored to be a potential shell company for Honor backdoor listing. Despite the company issuing two clarification announcements, Bird's stock price surged by over 20% within three days.

In November 2022, market reports suggested that Honor was considering listing in 2022 with a valuation of 300 billion yuan. According to ChinaFund, Shenzhen Urban Transport Center (SUTPC), a company mainly engaged in urban transportation, was considered a prime candidate for Honor's reverse takeover, and the stock price of SUTPC surged by over 50% since November 21.

At the same time, several A-share listed companies backed by Shenzhen's state-owned shareholders saw fluctuations in their stock prices. Shenzhen state-owned real estate enterprise Shenzhen Zhenye surged limit-up five times within six trading days, and Shenzhen Textile increased by over 40% in ten days.

In November 2023, the rumor of former Chairman of Shenzhen Water (Group) Co., Ltd., Wu Hui, joining Honor Terminal Co., Ltd. and possibly taking on the role of chairman was flying again. Business records indicate that Wu resigned as chairman and legal representative of Shenzhen Water on November 16, although he remains the legal representative and chairman of the parent company, Shenzhen Water and Environment Group Co., Ltd. which is actually controlled by Shenzhen State-owned Assets Supervision and Administration Commission (SASAC).

On Wednesday, the aforementioned listed companies such as Shenzhen Zhenye, SUTPC, and Shenzhen SEG all closed limit-up, while Shenzhen Textile's increase approached 8%.

However, following the announcement by Honor's chairman on Wednesday evening, the repeated rumors of backdoor listing were denied, resulting in a substantial drop in the prices of many popular shell company stocks. Before the opening on Thursday, STUPC and SWPD plunged by more than 10%, and Shenzhen Special Economic Zone Real Estate & Properties, Shenzhen SEG, Shenzhen Textile A, and Shenzhen Property A followed suit. By the close of trading, Shenzhen SEG hit the limit-down, Shenzhen Textile A fell by 7.05%, Shenzhen Zhenye A dropped by 7.51%, and STUPC fell by 8.46%.

Honor's valuation depends on overseas sales

"Continuously making Honor more open and transparent and diversifying its capital is also what all shareholders expect," Honor CEO Zhao Ming told TMTPost in a communication meeting marking Honor's third anniversary. "As a CEO, I need to do my job well to better support the shareholders and the board of directors in this regard."

Public records show that Honor's acquirer was Shenzhen Zhixin New Information Technology Co., Ltd. and over 30 Honor agents and distributors.

On November 16, 2022, Honor Terminal Co., Ltd. added six new shareholders: BOE Technology Group Co., Ltd., Zhongjin Qizhi (Shanghai) Equity Investment Management Co., Ltd. (Limited Partnership), Comprehensive Reform Win-Win (Hangzhou) Equity Investment Fund Partnership (Limited Partnership), China National Capital Co., Ltd., Shenzhen Baoan District Investment Management Group Co., Ltd., Rosy Fable Asia L.P. Consequently, Honor now has 15 shareholders, but Shenzhen SASAC remains the controlling shareholder.

In terms of domestic sales, Honor's share in the Chinese smartphone market has been increasing for the past three years. According to the Canalys report, the third quarter saw a 5% year-on-year decline in shipments of the Chinese smartphone market to 66.7 million units. Honor ranked first with an 18% market share, with shipments of 11.8 million units.

Lu Weibing, president of Xiaomi Group, also said in a recent earnings conference call that the concentration of the smartphone market has not yet reached the "final stage." "In the Chinese market, the market share of the top brand for the whole year has not exceeded 20%, and the fifth brand has not been below 15%. It is not yet stable, and will continue to converge. This means that there will be brands exiting the market."

According to market research institution Techinsights, despite a 0.3% decline in the overall global smartphone market shipments in the third quarter of 2023, Honor shipped 16 million units, a 14% year-on-year increase, raising its global market share to 5.4%. However, there is still a significant gap from the top five, namely, Samsung, Apple, Xiaomi, OPPO, and Transsion with global shares of 20.1%, 15.7%, 14.0%, 9.3%, and 8.9%, respectively.

Honor's overseas shipments currently account for approximately 30% of the company's total, expected to reach 40% by 2024, according to Zhao's latest statement. If calculated on this basis, Honor's global shipments in the third quarter of 2023 are estimated to be around 16.85 million units, while Xiaomi's would be 41.8 million units, indicating a considerable gap between the two.

The overseas market has become a critical battleground for Honor to maintain continued sales growth and is crucial for the company to achieve a high valuation in the secondary market.

"Honor sees 2023 as the first year the company entered the European market. There won't be specific sales targets set, but rather the goal is to establish a commercial ecosystem in the European market. However, the sales target in the European market for 2024 is to achieve 150% growth based on the sales in 2023," said Zhao.

(This article was first published on the TMTPost App. Author | Rao Xiangyu Editor | Zhong Yi)