Another mobile phone manufacturer is going to IPO after Xiaomi.

A 100,000-word article: The inevitable IPO of Honor

Author: Huang Yu

Editor: Zhang Xiaoling

Unlike Huawei, which firmly refuses to go public, Honor has been holding the "IPO script" since its independence three years ago. Now, the plot has finally reached its first climax.

On the evening of November 22nd, Honor, which had been rumored to be seeking a backdoor listing, officially announced that it will enter the capital market through an IPO. At the same time, it announced a change in leadership, with Wu Hui, the former chairman of Shenzhen Water Group, taking over as the new chairman of Honor, while the former chairman, Wan Biao, will serve as vice chairman.

Three years ago, when Honor was acquired, it was reported that it had signed a "listing gambling agreement" with its strategic investment shareholders. Three years later, Honor announced its new goal of "World Honor" and its intention to challenge Apple and Samsung. This requires substantial financial support, and the plan to go public has officially been put on the agenda.

From an industry perspective, the domestic smartphone market has entered a stage of stock competition, and smartphone manufacturers need to tell new stories. Capitalization and going public have become necessary.

Previously, there were not many domestic smartphone brands listed. Among the leading manufacturers, only Xiaomi, which is listed on the Hong Kong Stock Exchange, and Transsion Holdings, which is listed on the A-share Science and Technology Innovation Board but focuses its business overseas, have gone public. Now, a wave of smartphone manufacturers going public is coming. In addition to Honor, OPPO also announced its plans to go public last year.

The clarion call for going public has been sounded, and one of Honor's key tasks now is to tell a good story to the capital market and seek to maximize its valuation. This is bound to be a difficult battle.

A Must-Have Option

Before the IPO was officially announced, the capital market had already witnessed several rounds of crazy speculation on Honor's shell listing concept stocks. With the announcement of the new chairman, Honor finally revealed its cards.

On November 23rd, after the three-year anniversary of the founding of the new Honor and the new product launch event, CEO Zhao Ming stated that the addition of the new chairman will make the board of directors more diverse, which is what Honor needs in the process of going public. Honor's IPO does not have a benchmark, but it will definitely choose to list in China.

Zhao Ming said that a shell listing has never been Honor's choice. The reason for announcing the IPO at this time is to avoid being plagued by speculation about a shell listing.

Unlike Huawei, OPPO, and vivo, going public seems to be a must-have option for Honor.

Going back three years, at that time, under pressure from US sanctions, Huawei was forced to divest Honor and sell it to Shenzhen Zhixin New Information Technology Co., Ltd. Huawei no longer holds any shares in Honor.

Shenzhen Zhixin was jointly invested and established by Shenzhen Smart City Technology Development Group and more than 30 agents and distributors of Honor phones, with the actual controller being the Shenzhen State-owned Assets Supervision and Administration Commission.

Today, Honor is a mixed-ownership enterprise. After introducing six strategic shareholders including BOE in November last year, the number of shareholders has increased to 15. The shareholding ratio of the Shenzhen State-owned Assets Supervision and Administration Commission has not been disclosed.

In addition to taking away 8,000 employees from Huawei, the newly independent Honor had to start almost from scratch, at a time when the industry was in decline. Zhao Ming also admitted that three years ago, Honor was the weakest among all the core players in the Chinese market. Otherwise, no one would have said in 2020 that "Honor is finished." "It's impossible."

In this context, the shareholders who are willing to invest substantial amounts of money to acquire Honor will obviously want to sign relevant agreements to diversify their investment risks.

Therefore, there have been multiple reports suggesting that there are contingency agreements between Honor and the acquiring party, with the goal of taking the company public after three years of independence. Through these agreements, the acquiring party can achieve higher investment returns after Honor goes public. If the listing fails, the acquiring party can demand that the other party take corresponding responsibility.

Honor has not responded directly to these reports.

In addition to meeting the shareholders' return requirements, another important reason for Honor to go public is to drive its own business development.

After three years of difficult rebirth, Honor has regained its footing in the market. However, as the competition in the domestic smartphone market becomes increasingly fierce, Honor is starting to envision a broader global stage, which requires more financial support for product development and marketing.

Industry insiders believe that Honor, with only three years of independence, lacks the early accumulation and therefore has a greater need for external support. Additionally, in the international market, Honor's competitors are almost all listed companies. If Honor cannot raise funds through an IPO and expand its financing channels, it may be at a disadvantage.

While meeting its financial needs, Honor, which originated from Huawei, must also become more independent and transparent to avoid being seen as a shadow of Huawei and to ensure stability in its supply chain. Going public is undoubtedly an important way for Honor to demonstrate its independence and transparency.

Furthermore, Wang Peng, Deputy Researcher at the Beijing Academy of Social Sciences, stated to Wall Street News that going public will also help enhance Honor's brand influence.

According to Wall Street News, Honor has already launched an employee stock incentive plan internally, and employees have high expectations for Honor's listing on the A-share market next year.

Going public will be a turning point for Honor, as it enters a new stage of development.

As the listing approaches, it means that Honor must be prepared to face the scrutiny of the capital market.

In its announcement, Honor stated that over the past three years, the company has achieved rapid development in its strategy and business, continuously improved its governance structure, optimized its management system, and significantly enhanced its overall competitiveness and market position.

Combining Zhao Ming's statement that Honor will go public domestically, securities professionals told Wall Street News that there is a possibility for Honor to list on either the A-share main board or the Sci-Tech Innovation Board (STAR Market). This is mainly due to the relaxation of listing requirements on the A-share main board after the implementation of the comprehensive registration system, especially the removal of the requirement for three consecutive years of profitability.

Furthermore, under the comprehensive registration system, the original requirement for the main board, which was "no significant changes in the main business and the board of directors and senior management in the past three years," has been changed to "significant adverse changes." This also indicates that Wu Hui's joining the Honor board of directors will not hinder Honor's listing on the main board.

Now, what is Honor's position in the market? This is the key factor that the capital market will evaluate.

In the IDC ranking of China's smartphone shipments in the third quarter, Honor ranked first in the domestic smartphone market with a market share of 19.3%.

However, in the overall sluggish market, its performance in the third quarter of this year did not differ significantly from the previous year. In addition, with Huawei's return, it will be challenging for Honor to continue increasing its sales and market share in the domestic smartphone market. Honor has set its sights on the overseas market. Although it has not yet entered the top five in the overseas market, its growth is strong. According to Zhao Ming, Honor's growth rate in the overseas market exceeded 200% this year, and it achieved profitability within two years.

2022 is the first year for Honor's overseas expansion, and 2023 is the first year for Europe. Zhao Ming pointed out that Europe is Honor's high ground. Honor aims to make Europe its "second home market" and become a high-end brand in Europe, creating global glory.

In the ambition of global glory, high-end is the core strategy. In fact, since its separation from Huawei, Honor has been determined to focus on the high-end market.

For Honor, high-end is a very challenging path. After all, as a sub-brand of Huawei, Honor has positioned itself as a smartphone brand with an internet sales channel and focuses on high cost-performance to capture the market.

In order to change the market's stereotype, foldable screens have become Honor's strategic breakthrough in the high-end market. It is reported that on November 23, Honor's one millionth foldable screen smartphone officially went offline, with nearly 80% being Honor Magic V2.

This marks the complete productization of foldable smartphones in China, transitioning from pioneers to the mainstream, and is expected to help Honor further increase its market share in the high-end market.

Securities professionals also told Wall Street News that looking at the market share of smartphones alone is far from enough. Capital market evaluations of listed smartphone companies also place great importance on technological innovation, supply chain development, ecosystem construction, and value-added service revenue.

Compared to listed companies like Xiaomi and Apple, Honor does not yet have a mature hardware and software "ecosystem" and has certain shortcomings in diversifying its business income.

To strive for a higher valuation, Honor needs to present a broader and more promising business blueprint to the capital market.

Going public is not only an opportunity for Honor to prove that it is no longer in Huawei's shadow, but also a crucial leap for it to become a domestic smartphone brand that can rival Apple and Samsung in the international market.

Investors are eagerly awaiting this moment.