RLX Technology Inc.

RLX Details

RLX Technology Inc. (NYSE: RLX) is an e-vapor firm based in China. It develops e-vapor products by leveraging its proprietary technology, product development skills, and awareness of adult smokers' demands. In addition, it uses an integrated offline distribution and "branded store plus" retail strategy adapted to China's e-vapor industry to sell its products. RELX Classic, RELX Alpha, RELX I RELX Infinity, and RELX Phantom are among the company's key products. The company's American Depositary Shares (ADS) were listed on the NYSE on January 22, 2021, at an IPO price of USD 12.00 per ADS, with each ADS representing one Class A ordinary share.

Turning Used Pods into Cement: RLX launched its Pods Recycling project on September 09, 2021. It would invest RMB 20 million to recycle discarded e-liquid pods in China and turn them into cement. The initiative will begin in Beijing in September and expand to ten Chinese cities by February 2022.

Class-Action Lawsuit: Multiple security lawsuit complaints were filed against RLX in June and July 2021, alleging that its IPO registration statement intentionally downplayed the dangers relating to China's standardization of e-cigarettes to put them in line with traditional cigarette standards. China's Ministry of Industry and Information Technology published drafting regulations for e-cigarettes and novel tobacco products compared to traditional tobacco products on March 22, 2021. The complainants argue that investors could not accurately estimate the value of the shares offered in the IPO without knowing these facts, resulting in huge losses for them.

H1FY21 Results: The company reported a 3.57x YoY increase in net revenues to RMB 4.94 billion during H1FY21 (ended June 30, 2021) compared to RMB 1.08 billion during H1FY20, primarily due to expansion of distribution and retail networks. As a result, RLX witnessed a massive increase in its net income to RMB 557.28 million during H1FY21 vs. RMB 100.81 million reported in H1FY20. As of June 30, 2021, the company's cash and cash equivalents (including short-term bank deposits and investments) amounted to RMB 12.37 billion, with no outstanding debt.

Key Risks: Shenzhen Smoore Technology Limited, one of the company's key contract manufacturers, accounted for 78% of purchases in FY20, and its related accounts payable accounted for 83% of the total accounts and notes payable. Such over-reliance on a single vendor could harm the company's financial status in the long term. Moreover, the Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent the company's operations. This is after the passage of a bill in the US that could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Valuation Methodology: Price/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

RLX Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: RLX's share price has fallen 47.82% in the past six months and is currently trading close to the lower band of the 52-week range of USD 3.70 to USD 35.00. The stock is currently trading below its 50 DMA level, and its RSI Index is at 41.95. We have valued the stock using the Price/Sales-based relative valuation methodology and arrived at a target price of USD 5.72. Considering the company's track record, market dominance, robust financials, ongoing lawsuit, and other associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 4.67, up 2.98% as of September 22, 2021, 2:06 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Waitr Holdings Inc.

WTRH Details

Waitr Holdings Inc. (NASDAQ: WTRH) operates as a US-based online food ordering platform that provides delivery, carryout, and dine-in services. Customers may explore nearby restaurants and menus on the WTRH platform, track order and delivery status, and assist restaurants in enhancing their exposure to consumers for increased delivery and carryout sales. The company's technology platforms include the Waitr, Bite Squad, and the Delivery Dudes mobile application. WTRH had over 25,000 restaurants listed on its platform as of June 30, 2021, in over 900 cities, with an average daily order of 38,108 during H1FY21.

Acquiring Payment Processing Players: WTRH stated on August 26, 2021, that it completed the asset acquisition of three firms in the merchant processing solutions space: ProMerchant, Flow Payments, and Cape Cod Merchant Services. These purchases are part of the company's expansion plan to provide a comprehensive suite of payment processing services to its current base of restaurants and any new businesses.

Collaboration with Smoothie King: WTRH announced a new collaboration with Smoothie King, a prominent producer of smoothie drinks in the US, on August 17, 2021. Waitr and Bite Squad have now begun delivering from over 350 Smoothie King outlets. Aside from introducing Smoothie King to the Waitr platform, the two firms are working on various cooperative activities to promote the collaboration, including co-branding marketing options in specific markets.

H1FY21 Results: The company reported a slight decline of 4.44% in revenues to USD 100.10 million during H1FY21 (ended June 30, 2021) compared to USD 104.75 million during H1FY20, primarily as a result of decreased order volumes. As a result, WTRH witnessed a net loss of USD 9.35 million during H1FY21 vs. a net income of USD 8.55 million reported in H1FY20. As of June 30, 2021, the company's cash and cash equivalents amounted to USD 60.55 million, with total debt of USD 86.68 million.

Key Risks: The US Department of Labor (DOL) reduced enforcement of misclassification claims under the Fair Labor Standards Act (FLSA) under the Trump administration. In addition, shortly before President Trump left office, the Department of Labor (DOL) released a new, business-friendly independent contractor standard. However, in May 2021, the DOL delayed and eventually revoked the regulation's implementation. The issuance of such tighter laws or increased DOL enforcement activities in the future could harm WTRH's operations and profits.

Outlook: On June 03, 2021, WTRH launched a strategic rebranding strategy to change its name and visual identity, with results expected in 12–18 months. This initiative reflects WTRH's long-term ambition for innovation, growth into new industries, and the development of a technology-forward platform.

Valuation Methodology: Price/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

WTRH Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: WTRH share price has declined 75.07% in the past twelve months and is currently trading at a lower band of the 52-week range of USD 0.89 to USD 4.57. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 34.38. We have valued the stock using the Price/Sales-based relative valuation methodology and arrived at a target price of USD 1.18. Considering the significant correction in the stock price, acquisition of payment processing companies, new partnerships, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 0.95, up 1.18% as of September 22, 2021, 12:27 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.