Although RLX Tech has seen results in going overseas, concerns about regulatory supervision remain

The company stated that overseas markets contributed over 70% of revenue in the third quarter, far exceeding the challenging domestic market in China.

Key Points:

• Through mergers and acquisitions in Asia and Europe, the company's revenue surged by 49% in the third quarter, driving up its stock price.
• As revenue growth outpaced a slight increase in production costs, the company's gross margin improved by 4 percentage points this quarter.

Tan Ying

Wang Ying (Kate) can be considered the most charismatic CEO in the global e-cigarette industry. She previously worked at Didi Global, Uber China, and Bain & Company, and holds an MBA from Columbia University. After the death of a colleague's father from cancer, she realized the potential of e-cigarettes to help smokers break free from traditional cigarettes, leading her to establish her own company—RLX Technology (RLX.US). At the peak of the global e-cigarette boom in 2021, RLX Technology went public in New York, with a market value that once approached $35 billion.

RLX Technology's business also peaked that year, recording revenue of 8.5 billion yuan ($1.2 billion) and a net profit of 2 billion yuan. However, China had begun to tighten regulations on e-cigarettes at that time, introducing new taxes and multiple restrictions, causing RLX Technology's revenue to plummet to just 1.2 billion yuan in 2023. During this period, Wang Ying began to shift her focus to overseas markets. Although there are also tightening regulations abroad, compared to China's state-owned tobacco monopoly market, there are fewer strong competitors overseas, making the environment more favorable.

And the facts have proven Wang Ying's judgment correct season by season. The latest evidence comes from RLX Technology's third-quarter results announced last week: although the quarterly revenue of 1.13 billion yuan ($159 million) is still far below the peak, it has increased nearly 50% year-on-year. The company's gross margin also improved by 4 percentage points year-on-year to 31.2%, and net profit rose 22% to 206.8 million yuan.

Wang Ying stated, "This achievement demonstrates the scalability of our globalization strategy and the exceptional technological innovation that secures our leading position in the e-vaporization field." She added that currently, over 70% of the company's revenue comes from overseas markets.

One of the main reasons for RLX Technology's significant revenue increase this quarter is the acquisition of a European e-cigarette company in March this year, which has been included in the consolidated financial statements for the first time. Additionally, Chief Financial Officer Lu Chao stated that the Asian market also recorded "strong organic growth."

Even more exciting for investors is RLX Technology's announcement of a cash dividend of $0.1 per American Depositary Share (ADS). Along with the $300 million in shares repurchased as of September 30, Lu Chao stated that RLX Technology has returned over $500 million to shareholders through buybacks and dividends.

A series of positive news has stimulated a significant rise in RLX Technology's stock price, which surged 10.3% to $2.57 after the announcement, making it one of the best-performing stocks on the New York Stock Exchange that day. However, the company's current market value of $3.2 billion is still less than one-tenth of its peak, but its price-to-earnings ratio (P/E) of about 31.5 times remains relatively high.

Analysts surveyed by Yahoo Finance generally hold a positive attitude towards RLX Technology, despite the company facing strict regulations in almost all major markets. Among five analysts, four rated it as "buy," while only one suggested "hold." Compared to its peers, RLX Tech's performance is also outstanding. Ispire Technology (ISPR.US), which produces atomization devices, disposable e-cigarettes, and batteries, has seen its market value evaporate by 76% since its listing in April 2023 and is currently still in a loss-making state. Meanwhile, Smoore International (6969.HK), primarily focused on OEM, now has a stock price that is only a quarter of its listing price, yet its price-to-earnings ratio (P/E) remains as high as about 60 times, even higher than that of RLX Tech.

Decreasing Dependence on the Chinese Market

The most surprising aspect of RLX Tech's latest performance is that its revenue focus is rapidly shifting away from the Chinese market. A year ago, revenue from five countries in the Asia-Pacific region accounted for more than half of the total revenue for the quarter. Wang Ying stated that the share of overseas markets continues to expand, with China now only accounting for 29% of the company's overall revenue.

In addition to the revenue from its new subsidiary in Europe, Wang Ying attributed this quarter's impressive performance to the company's implementation of an authorized chain retail model in the Asia-Pacific region, integrating independent large stores into a "unified brand system" to enhance retail execution, increase brand visibility, and strengthen user experience.

In Indonesia, one of its largest markets, RLX Tech claims to be the sales leader of closed-system atomization devices. The company is promoting a "zero franchise fee" authorized chain model and believes this model has significant growth potential. According to ECigIntelligence data, there were 67.3 million smokers in Indonesia in 2020, but only 1.55 million e-cigarette users; in comparison, the Philippines had 24.5 million smokers and 1.9 million e-cigarette users that year. The source noted that e-cigarette usage in Indonesia is expected to grow by 110% from 2018 to 2024.

According to promotional materials, RLX Tech's brand RELX has a total of 15,000 sales points worldwide, with the most in Europe at 10,842; Indonesia ranks second with 6,577 sales points.

Wang Ying expressed her belief that as more traditional cigarette users switch to electronic products and move away from tobacco, the e-cigarette market will continue to expand. According to Statista data, global revenue from traditional cigarettes is expected to reach $872.8 billion this year, with a year-on-year growth rate of about 2.39%; the e-cigarette market is expected to be valued at $27.2 billion, with a higher growth rate of 3.69%, seemingly confirming her confidence.

However, regulation remains one of the biggest variables in the e-cigarette industry. New national regulations implemented in Indonesia last year almost equate e-cigarettes with traditional cigarette management, requiring packaging warnings and setting the minimum purchase age at 21 (higher than the 18 years for traditional cigarettes). Thailand, Singapore, Cambodia, and Laos have completely banned e-cigarette products. Hong Kong has also prohibited e-cigarettes, vaporizers, e-liquids, and heated tobacco products since 2022. Japan has similar restrictions, while South Korea is relatively lenient.

Additionally, tariffs imposed by the United States on multiple countries have created greater volatility and uncertainty in the supply chain for raw materials and finished products, especially for products from China. RLX Tech currently has its own e-liquid factory at its headquarters in Shenzhen. However, as the global retail network expands and the company attempts to reduce its dependence on the Chinese market, U.S. tariffs on China may force the company to shift its production lines overseas Competitor Ispire has taken the lead in adopting this strategy, with its vaping hardware now produced in Malaysia