Its shareholding reform rolled up, Honor is ready for IPO

A separate listing by Huawei’s former budget smartphone brand has been the subject of frequent speculation since its spinoff as a separate company four years ago

Key Takeaways:

• The CEO of former Huawei budget smartphone brand Honor has said his company plans to list in China and that a backdoor listing is off the table
• Honor was China’s third best-selling smartphone brand in China in last year’s third quarter, ahead of Apple and behind only Vivo and Huawei

By Lee Shih Ta

Its name implies glory, and for the last four years investors have been wondering when smartphone maker Honor– formerly part of tech giant Huawei – might finally seek such a spotlight in the financial world through an IPO.

That waiting and wondering game may finally be nearing an end, with news that Honor was transformed into a joint-stock limited company at the very end of last year, on Dec. 28 to be precise. With that critical step, the company formally changed its name to Honor Device Co. Ltd., according to an announcement on its website. Such shareholding reform is a necessary step before an IPO, and can often signal that one is coming soon.

It typically involves restructuring a company’s business, governance structure and finances and other elements, with the end result that the entity is organized as a joint stock company. The China Securities Regulatory Commission (CSRC) mandates that any company issuing public shares to raise funds must be organized as a joint stock company first, and thus shareholding reform is a necessary step for companies to go public.

Honor was established in 2013 as one of telecoms giant Huawei’s sub-brands making lower-cost smartphones. Facing major U.S. sanctions in late 2020 that threatened its ability to obtain smartphone chips, Huawei sold Honor to Shenzhen Zhixin New Information Technology to preserve the brand and maintain its access to U.S. suppliers.

Honor’s new owner was founded by Shenzhen Smart City Technology Development Group together with more than 30 of Honor’s suppliers and distributors. Its controlling shareholder is the Shenzhen arm of the State-owned Assets Supervision and Administration Commission (SASAC), the owner of all major state-owned assets in China.

The ownership move was seen as a stopgap measure at the time allowing Honor to avoid sanctions targeting Huawei, and the buyer group was never seen as a long-term owner of the company.

Honor has registered capital of 32.2 billion yuan ($4.41 billion) and a strong lineup of 23 shareholders, many of them major state-run companies, including BOE Technology (000725.SZ), China Telecom (0728.HK; 601728.SH), China Mobile (0941.HK; 600941.SH), CICC, Guosen Capital and Kunpeng Capital.

Being forced to stand on its own hasn’t stopped Honor from delivering commendable results outside the shadow of its high-profile former parent. In last year’s third quarter, it was China’s third-biggest smartphone seller with 10.3 million handsets shipped and 15% market share, trailing only Vivo and Huawei with 19% and 16% share, according to market research firm Canalys. Xiaomi (1810.HK) and Apple (AAPL.US) rounded out the top five with 15% and 14% of the market, respectively.

As more time passed without word of undergoing a shareholding reform, rumors that Honor might make a backdoor listing by acquiring an already-listed shell company surfaced several times. In August 2021, former smartphone maker Ningbo Bird (600130.SH) was rumored to be involved in such talks, sparking a more than 20% surge in its stock over three days. Similar stories appeared again in November 2023, sparking rallies for many listed companies controlled by the Shenzhen arm of SASAC.

After the company finally announced last August it would launch its shareholding reform in the fourth quarter, two listed companies that invested in Honor, Shenzhen Aisidi (002416.SZ) and Telling Telecommunication Holding (000829.SZ), both saw strong gains for their stocks. Such movements show just how closely the market is watching Honor, whose every move has the potential to boost shares of related listed companies.

200 billion yuan valuation?

While timing and other elements of an IPO are all up in the air, one thing that’s more certain is where Honor would list. That’s because CEO George Zhao once said quite clearly that “If we are going to get listed, we will list in China. A backdoor listing is off the table.” That would indicate the company would list either on China’s A-share markets in Shenzhen and Shanghai, or in Hong Kong, which is more accessible to international investors.

A pre-IPO financing plan leaked by the media last August claimed Honor was planning to file for an IPO by year end on the Nasdaq-style ChiNext in Shenzhen with a pre-IPO valuation of 200 billion yuan. But the plan was never confirmed by Honor itself. To put such a valuation in perspective, Xiaomi is currently worth around HK$813 billion ($105 billion) with a price-to-earnings (P/E) ratio of 24.9 times, while Shenzhen Transsion Holdings (688036.HK) is valued is close to 110 billion yuan with a P/E ratio of 19 times.

The official completion of the shareholding reform is undoubtedly a major step forward on Honor’s IPO journey. Among major Chinese smartphone brands, Huawei, Vivo and Oppo are all unlisted. Xiaomi is listed in Hong Kong, though it sells a wide range of other products beyond smartphones, including its recent entry into electric vehicles (EVs). Transsion is also listed, focusing mainly on the African market. Thus, a listing by Honor would put it in relatively rare company among listed Chinese smartphone makers.

New momentum behind the listing effort might be driven partly by shareholders wanting to cash out. In November 2023, Wu Hui, who comes from a state-run enterprise background, took over as Honor chairman from Wan Biao, a former senior Huawei executive. One of Wu’s priorities at that time was to oversee the company’s IPO, reflecting what major shareholders wanted at the time, according to media reports.

Additionally, many of Honor’s shareholders are its suppliers or distributors that it may have shared with Huawei. But Huawei’s recent comeback in the smartphone market has made it an Honor competitor. Now, some distributors may feel they are being forced to pick sides between the two, so that Honor may see its listing as a way of retaining distributors that hold its shares.

Building smart device ecosystem

A separate listing would underscore Honor’s independence, and also mark the beginning of a new journey. Shenzhen Xingyao Terminal Co. Ltd., a fully owned Honor subsidiary, has recently invested in four of its own subsidiaries engaged in areas like mobile devices, home appliances, wearables, smart robots and smart drones, indicating that Honor is actively developing its own smart device ecosystem. At the same time, developing AI and expanding overseas also rank among its priorities. 

From being forced by circumstances to go its own separate way, to pursuing an IPO, Honor has a compelling story to tell that could win over investors if it plays its cards right. How it plays those cards in the New Year could well determine whether it’s viewed as a serious player in the global smartphone market, or whether it remains in the shadow of former parent Huawei.

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