After Becoming Virtual Network Operator, Chinese Mobile Device Retail Chain DIGITONE Finally Sets to Go IPO

DIGITONE, or D.Phone (Dixintong in Chinese), is one of the biggest mobile device retail chains in China that made the first attempt at an IPO in Hong Kong back in 2005. Earlier this year DIGITONE was of the very first batch of Mobile Virtual Network Operators (MVNO) approved by China’s Ministry of Industry and Information Technology (MIIT) . Now the company has decided to make another IPO try that announced to go public on July 8 in Hong Kong to raise about HK$942 million.

The company has rolled out SIM card plans, including calling and data plans, which are available for pre-order in eight Chinese cities including Beijing and Shanghai.

Since the MVNO business hasn’t made meaningful money for it, the company has been making revenues from the retail stores that sell mobile phones, tablets and other accessories for mobile devices.

As of April 2014, there were 1512 DIGITONE brick-and-mortar stores in 21 provinces and all four municipalities of China. Most of the stores are in first – or second – tier cities. The company plans to open more stores in lower tier cities.

An average of 625,000 mobile phones were sold monthly in 2013. The company has largely depended on the three Chinese telecom operators that a large part of revenues is from sales of customized phones by them. It is estimated it has 10% of share in mobile device retail chain market.

The company made RMB12.8 billion (US$2.1 bn) in total revenue in 2013, a 45% increase. The net profit was RMB270 million (US$44 mn).

But the company found the gross profit margin decreased as smartphone sales grew, for the cost prices for smartphones were higher but the selling prices cannot be set very high. It must have something to do with the “one-thousand-yuan” (about US$160) smartphone movement in recent years that was initiated by some Chinese smartphone brands in order to encourage users to switch to smartphones.