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MarketScreener Homepage  >  Equities  >  SHENZHEN STOCK EXCHANGE  >  Digital China Group Co., Ltd.    000034   CNE000000DQ6

DIGITAL CHINA GROUP CO., LTD.

(000034)
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Exclusive: Huawei in talks to sell parts of its Honor smartphone business - sources

10/14/2020 | 03:12am EST
FILE PHOTO: President of Huawei's Honor brand, George Zhao, launches the Honor 20 range of smartphones at an event in London

HONG KONG (Reuters) - Huawei Technologies Co Ltd is in talks with Digital China Group Co Ltd and other suitors to sell parts of its Honor smartphone unit in a deal that could fetch up to 25 billion yuan ($3.7 billion), people with knowledge of the matter said.

Embattled Huawei is resetting its priorities due to U.S. sanctions and will focus on its higher-end Huawei phones rather than the Honor brand which is aimed at young people and the budget conscious, they said.

The assets to be sold have yet to be finalised but could include Honor's brand, research & development capabilities and related supply chain management business, two of the people said.

The deal may be an all-cash sale and could end up smaller, worth somewhere between 15 billion yuan and 25 billion yuan, one of the people said.

Digital China, the main distributor for Honor phones, has emerged as the frontrunner but other prospective buyers include Chinese electronics maker TCL and rival smartphone maker Xiaomi Corp, the people said, declining to be identified as the talks were confidential.

Huawei, the world's biggest telecoms equipment vendor and No.2 smartphone maker, declined to comment as did TCL. Digital China and Xiaomi did not respond to requests for comment.

The Honor brand was established by Huawei in 2013 but the business mostly operates independently from its parent.

'A WIN-WIN SITUATION'

Kuo Ming-chi, an analyst at TF International Securities, has said that any sale by Huawei of the Honor smartphone business would be a win-win situation for the Honor brand, its suppliers and China's electronics industry.

"If Honor is independent from Huawei, its purchase of components will no longer be subject to the U.S. ban on Huawei. This will help Honor's smartphone business and the suppliers," he wrote in a research note last week.

The U.S. government last year moved to prevent most U.S. companies from conducting business with Huawei, saying the tech giant was ultimately answerable to the Chinese government. Huawei has repeatedly denied being a national security risk.

In May, Washington announced new rules aimed at constricting Huawei's ability to procure crucial chips that it designs for 5G networking gear and smartphones.

The Honor brand, which sells its phones online through its own sites and via third-party retailers, competes with Xiaomi, Oppo and Vivo in the market for lower-end phones in China. Its phones are also sold in Southeast Asia and Europe.

Honor brand smartphones accounted for 14.6 million, or 26% of the 55.8 million smartphones Huawei shipped in the second quarter of this year, according to estimates from research firm Canalys.

But margins for lower-end phones can be razor thin, and Honor booked less than 5 billion yuan in net profit on revenue of about 70-80 billion yuan last year, said one of the people.

If successful in its bid, Digital China, which also partners with Huawei in cloud computing and other businesses, plans to finance the bulk of deal with bank loans and is set to secure the financing in the coming weeks, the people said.

Shares in Digital China initially rose by their maximum daily limit of 10% but later pared gains to stand 3% higher on Wednesday afternoon, giving the Shenzhen-listed company a market value of around $2.9 billion.

($1 = 6.7389 Chinese yuan)

(Reporting by Julie Zhu in Hong Kong; Additional reporting by David Kirton in Shenzhen; Editing by Sumeet Chatterjee and Edwina Gibbs)

By Julie Zhu


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
DIGITAL CHINA GROUP CO., LTD. -3.32% 19.2 End-of-day quote.-10.53%
DIGITAL CHINA HOLDINGS LIMITED -2.13% 5.96 End-of-day quote.-6.29%
TCL ELECTRONICS HOLDINGS LIMITED 5.81% 7.29 End-of-day quote.25.47%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) 0.10% 6.50177 Delayed Quote.-0.36%
XIAOMI CORPORATION 2.52% 30.55 End-of-day quote.-7.98%
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Financials
Sales 2020 90 856 M 14 015 M 14 015 M
Net income 2020 725 M 112 M 112 M
Net Debt 2020 - - -
P/E ratio 2020 17,2x
Yield 2020 -
Capitalization 12 337 M 1 903 M 1 903 M
Capi. / Sales 2020 0,14x
Capi. / Sales 2021 0,12x
Nbr of Employees 4 486
Free-Float 51,6%
Chart DIGITAL CHINA GROUP CO., LTD.
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Technical analysis trends DIGITAL CHINA GROUP CO., LTD.
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TrendsBearishBearishBearish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 2
Average target price 24,69 CNY
Last Close Price 18,94 CNY
Spread / Highest target 30,4%
Spread / Average Target 30,4%
Spread / Lowest Target 30,4%
EPS Revisions
Managers and Directors
NameTitle
Wei Guo Chairman, President & General Manager
Mei Zhang Chairman-Supervisory Board
Xin Xin Chief Financial Officer & Director
Xiao Yan Wang Director
Jin Mei Zhu Independent Director
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1st jan.Capitalization (M$)
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