Transsion Holdings Q3 revenue increased but profits fell; revenue rose 22.60% year-on-year, while profit dropped 11.06% year-on-year.

Transsion Holdings, the "King of African Smartphones," has submitted a third-quarter report card that's difficult to call satisfactory. Revenue for Q3 rose 22.6% year-over-year, but profits did not follow suit, with net profit dropping by 11%. For the first three quarters, net profit even plummeted by 44.97% year-over-year.

On the 28th, Transsion Holdings released its third-quarter performance report. Key points are as follows:

Revenue for the first three quarters was 49.543 billion yuan, a year-over-year decrease of 3.33%; net profit attributable to the parent company was 2.148 billion yuan, a disastrous drop of 44.97% year-over-year.Q3 single-quarter revenue was 20.466 billion yuan, up 22.60% year-over-year; net profit attributable to the parent company was 935 million yuan, down 11.06% year-over-year.Net operating cash flow was 3.285 billion yuan, a significant increase of 164.66% year-over-year, mainly due to reduced payments for procurement.Gross profit margin for the first three quarters was about 19.5%, down about 2 percentage points from last year's 21.6%.

Behind the performance slump: Gross margin decline is the biggest concern

The third-quarter report shows net profit attributable to the parent company was 2.148 billion yuan, a year-over-year plunge of 44.97%, significantly exceeding the 3.33% decline in revenue.

Even more alarming is the deterioration in profit quality. Net profit excluding non-recurring items was 1.731 billion yuan, a year-over-year decrease of 46.71%, an even greater drop than net profit attributable to the parent company, indicating the company's core business profitability is rapidly weakening. Weighted average ROE plunged to 10.48%, nearly 10 percentage points lower than last year, with a sharp reduction in shareholder returns.

The company attributes the performance slump in its financial report to "the combined effects of market competition and supply chain costs." According to the data, operating costs for the first three quarters were 39.897 billion yuan, a minimal year-over-year decrease of only 0.72%. However, against a 3.33% decline in revenue, this means gross margin dropped from about 21.6% last year to about 19.5% this year, a decrease of more than 2 percentage points. This change has directly squeezed profit margins.

Commitment to R&D investment, improvement in cash flow

On the expense side, sales expenses for the first three quarters were 3.882 billion yuan, up 4.17% year-over-year; management expenses were 1.306 billion yuan, down 2.52% year-over-year; R&D expenses were 2.139 billion yuan, a significant jump of 17.26% year-over-year, with the R&D expense ratio increasing from last year's 3.56% to 4.32%. Increased R&D investment is beneficial to the company's long-term development, but under current profit pressure, it has further squeezed short-term profit margins.

Amidst the sluggish performance, the substantial improvement in cash flow is a major highlight for the company. Net operating cash flow for the first three quarters was 3.285 billion yuan, a massive surge of 164.66% year-over-year. The company explains that "the amount of raw material procurement payments due this period was significantly lower than in the same period last year, and payment for purchased raw materials declined year-over-year." This means the cash flow improvement was due to reduced procurement payments.

It's worth nothing that from the start of the year to now, Transsion Holdings' stock has fallen more than 30%, dropping from a yearly high of 110.25 yuan/share to 75.78 yuan/share.

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