In modern society, mobile phones have become a necessity in people's lives. Whether it's making phone calls, sending messages, shopping, watching news, listening to music, or playing games, mobile phones are inseparable.

Over the past ten years, China's mobile phone shipments have been at the forefront of the world. In 2023, China's mobile phone shipments are about 0.289 billion units, and it is expected to grow to about 0.341 billion units by 2028.

With the upgrading of mobile phones, consumer demand to dispose of old or unused mobile phones is also rising. Against this backdrop, China's mobile phone recycling market continues to grow. Coupled with the consumption upgrade of used electronic devices such as laptops and tablets, they have jointly promoted the booming development of the second-hand consumer electronics trading market.

Now a company that is already in the mobile phone recycling business is going public in Hong Kong.

Gelonghui learned that recently, Flashback Technology Co., Ltd. (hereinafter referred to as “Flashback Technology”) submitted a prospectus to the Hong Kong Stock Exchange to be listed on the main board of the Hong Kong Stock Exchange. Zinko Capital is its sole sponsor. According to reports, Flashback Technology was listed on the Hong Kong Stock Exchange in February of this year.

According to Frost & Sullivan's data, based on the total number of consumer recycling transactions in 2023, Flashback Technology is the largest mobile phone recycling service provider in China that provides offline trade-in and the third largest mobile phone recycling service provider in China, with market shares of about 7.4% and 1.4% respectively.

In recent years, with the popularity of electronic products, the revenue of Flashback Technology, which focuses on recycling services for consumer electronics products such as mobile phones, has shown an upward trend. At the same time, it has also obtained shares from institutions such as Xiaomi, but currently the company is still in a state of loss, and cash flow is tight.

01

Xiaomi took a stake, valued at 2.4 billion

Flashback Technology was founded in 2016 to provide aftermarket trading services for consumer electronics products. The company cooperates with upstream procurement partners to provide integrated comprehensive solutions, from initiating recycling and promoting sales of new machines through trade-in to standardized resale of purchased used mobile phones through testing, grading and pricing.

The company's business model, image source: prospectus

Flashback Technology launched the “Flash Recycling” brand in 2017, and introduced Hangzhou Shunying, Shunwei Technology, and Jinmi Investment as Series A investors in 2018. It also established a cooperative relationship with Alibaba Group's brand Xianyu in 2021, and the business grew bigger and bigger.

According to December 2023, Flashback Technology allotted and issued approximately 0.5038 million D-1 preferred shares to Anji Guorong BVI, accounting for about 2.33% of the company's issued share capital, at a cost of 8 million US dollars. The valuation of Flashback Technology is about 0.343 billion US dollars (about 2.4 billion yuan).

Prior to this issuance, Mr. Liu Jianyi and Ms. Yu Hairong jointly held beneficial interests of about 45.35% of the total issued shares of Flashback Technology. Meanwhile, Xiaomi Group, Tongchuang Weiye, and Shenzhen Smart City Industrial Investment were all shareholders of the company.

Liu Jianyi, the chairman and general manager of Flashback Technology, graduated from Jiangxi University in China at age 54, majoring in food science. Liu Jianyi also obtained a master's degree in business administration from the University of Wales in October 2007 after completing relevant courses at the Tsinghua University Research Institute in Shenzhen.

Liu Jianyi has extensive experience in the telecommunications industry. Prior to founding Flashback Technology, he was the director of the operator department at Shenzhen Yitian Mobile Digital Chain Co., Ltd. (a subsidiary of mobile phone distributor Tianyin Holdings), mainly responsible for expanding and managing business relationships with mobile network operators in the telecommunications sector. Later, he also served as a supervisor of Shenzhen Recycle Bao Technology Co., Ltd., a company mainly engaged in the trading of used mobile digital products. Liu Jianyi was mainly responsible for supervising channel management strategies and operations.

Yu Hairong, 45, graduated from Southwest China Agricultural University (now Southwest University) with a bachelor's degree in information management and information systems. She was the Deputy General Manager of Shenzhen Yitian and is now the Executive Director and CEO of Flashback Technology.

02

In the mobile phone recycling business, performance continues to lose money

Used mobile phones in the hands of individual consumers can be recycled through trade-in or idle recycling. Looking at supply channels, from 2021 to the first half of 2024, more than 80% of Flashback Technology's electronic products were obtained through trade-in.

Flashback Technology has two core brands, Flashback Recycling and Flashback Products. Among them, Flash Recycling mainly carries out offline trade-in business and collects used consumer electronics products from upstream procurement partners; Flash Back sells used consumer electronics products to customers through its own online platforms or its own online stores on third-party e-commerce platforms.

In recent years, the transaction scale of China's mobile phone recycling market has shown an upward trend. In 2023, the transaction volume of recycled mobile phones exchanged in China reached 14.2 billion yuan, and is expected to grow to 56.5 billion yuan by 2028. The compound annual growth rate from 2023 to 2028 is about 31.8%; at the same time, the transaction volume of unused mobile phones has continued to grow.

Photo source: Prospectus

In this context, Flashback Technology's revenue also continued to rise, but the company was still in deep losses.

In 2021, 2022, 2023, and the first half of 2024 (the “reporting period”), the company's revenue was approximately 0.75 billion yuan, 0.919 billion yuan, 1.158 billion yuan, and 0.577 billion yuan, respectively. The corresponding net profit was about -0.049 billion yuan, -0.099 billion yuan, -0.098 billion yuan, and -0.04 billion yuan, respectively. The cumulative loss for three and a half years exceeded 0.28 billion yuan.

Under the loss of performance, from 2021 to 2023, Flashback Technology generated about 6.4 million yuan, 43.7 million yuan, and 47.8 million yuan in net cash used in operating activities, respectively. The company also stated that it may continue to generate losses and negative net cash flow in the future due to various reasons.

Specifically, over 90% of Flashback Technology's revenue during the reporting period came from selling used mobile phones, and a small portion of its revenue came from selling other used consumer electronics products and other services.

As an electronics recycling service provider, Flashback Technology's gross margin mainly reflects the difference between the price it pays to purchase used consumer electronics products from supply channels and the resale price on sales platforms. However, the gross margin of Flashback Technology's sales of used phones is not high, and the company's overall gross margin is also on a downward trend.

According to the prospectus, from 2021 to the first half of 2024, the gross margin of Flashback Technology's sales of used phones fell from 6.7% to 3.8%, and the overall gross margin fell from 8.2% to 4.5%.

Among them, the company's gross margin declined year-on-year, mainly due to the impact of the epidemic and increased market competition, etc.; in 2023, thanks to the restoration of the domestic business environment after the epidemic and the reduction in promotional service fees and commissions paid by the company to upstream procurement partners and related front desk sales staff, gross margin also improved; in the first half of 2024, under the influence of intense industry competition and consumption downgrade, the company's used mobile phone procurement costs and commission costs paid to front desk sales staff in upstream procurement partner stores increased. Gross profit margins have declined sharply again.

Details of the company's gross profit and gross margin, image source: prospectus

In addition, Flashback Technology mainly relies on offline store sales staff from upstream procurement partners to provide in-store consumers with a trade-in experience. Generally, offline trade-in transactions are for individual consumers to wait on-site, monitor the quality inspection, pricing, and initial data erasure process of the old phone through the company's system, and buy a new phone after deducting the price of the old phone and other promotional discounts. If store sales staff fail to provide consumers with a high-quality trade-in experience, it may affect the company's recycling service business and reputation.

Flashback Technology's upstream procurement partners include physical stores operated by mainstream consumer electronics brands and their designated distributors, large merchants, and large mobile network operators.

Notably, Flashback Technology is more dependent on upstream procurement partners to obtain used consumer electronics products. From 2021 to 2023, the total number of used consumer electronics products (mainly mobile phones) purchased by the company using trade-in methods through upstream procurement partner channels was about 1.03 million units, 1.17 million units, and 1.51 million units, respectively. If the relationship between the company and procurement partners deteriorates in the future, it may affect the company's operating performance.

Flashback Technology also stated in its prospectus that it recorded net current liabilities and net liabilities during the reporting period, and may not be able to generate sufficient cash flow to fund operations or meet current liabilities in the future.