RLX Technology Inc.

RLX Details

RLX Technology Inc. (NYSE: RLX) is a Chinese e-vapor company focused on manufacturing e-vapor products. RLX develops e-vapor products by integrating proprietary technology, product development expertise, and understanding adult smokers' needs. It sells its products using a "branded store plus" retail strategy customized to China's e-vapor market. 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. 

Latest News:

• Changes In the Audit Committee: On October 05, 2021, RLX announced the resignation of Ms. Ying (Kate) Wang from the company's audit committee to help the company achieve the NYSE listing standards for audit committee independence. As a result, Ms. Zhenjing Zhu and Mr. Youmin Xi will be the only independent directors on the Audit Committee.

H1FY21 Results:

• Surge in Topline: The company reported YoY growth of 3.57x in net revenues to RMB 4.94 billion in H1FY21 (ended June 30, 2021) as compared to RMB 1.08 billion in H1FY20, primarily due to the expansion of distribution and retail networks.
• Growth in Profitability: RLX reported a sharp uptick in its net income to RMB 557.28 million in H1FY21 vs. RMB 100.81 million in H1FY20.
• Cash and Debt Position: 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:

• Political and Regulatory Risk: 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 Per Share 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 surged 27.37% in the last week 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 between its 50 and 200 DMA levels, and its RSI Index is at 63.50. We have valued the stock using the Price/Sales-based relative valuation methodology and arrived at a target price of USD 5.33.

Considering the increase in stock price in such a short span, robust financials, current valuation, and other associated risks, we recommend a "Sell" rating on the stock at the current price of USD 5.895, up 20.06% as of November 23, 2021, at 9:37 AM ET.

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

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