RLX Technology reported net revenues of RMB627.2 million ($86.3 million) in the second quarter of 2024, up 66 percent from the comparable 2023 quarter. U.S. GAAP net income was RMB134.9 million, down from RMB204.7 million in the same period of 2023. Non-GAAP soared to RMB213.1 million from RMB86.2 million. Gross profit was RMB157.9 million, compared with RMB98.5 million in the comparable 2023 period.
“We delivered a strong second quarter performance as revenue continued to increase sequentially, driven by our international business expansion,” said RLX Chairperson and CEO Ying (Kate) Wang in a statement.
“Our deep exploration of overseas markets and regulations has provided us with valuable insights into the global e-vapor landscape, enabling us to create effective, targeted regional strategies. This year, global regulations are rapidly evolving, with more regulators recognizing e-vapor products as harm-reduction tools for adult smokers. Leveraging our broad expertise in regulatory compliance, we are well-prepared to navigate these changes and ensure a seamless transition for our users and partners.”
Chief Financial Officer Chao Lu said the considerable year-on-year increase in net revenues reflected the company’s ability to capture growth opportunities in international markets. “While our gross margin declined slightly due to an unfavorable shift in our revenue mix, disciplined cost management bolstered our non-GAAP operating profit margins,” he said.
“Looking ahead, we are confident of driving continued improvement in both our top and bottom lines, fueled by ongoing revenue growth from international markets and our relentless focus on operational efficiency. As always, our priority is to deliver sustainable and profitable returns to our shareholders.”
The company reported net revenues of RMB340 million ($49.3 million) in the fourth quarter of 2022, down from RMB1.9 billion in the same period of 2021. Its GAAP net loss was RMB225.1 million, compared with GAAP net income of RMB494.4 million in the comparable 2021 quarter.
For the full fiscal year, net revenues declined to RMB5.33 billion in 2022 from RMB8.52 billion in 2021. U.S. GAAP net income was RMB1.41 billion, down from RMB2.03 billion in the prior year.
“2022 was a year full of unprecedented challenges,” said RLX Technology co-founder, chairperson and CEO Ying Wang in a statement. “A combination of Covid-related disruptions and the introduction of a substantial package of industry regulations and policy updates throughout the year impacted the e-vapor sector and our operations.
“We retained our core strategy in this volatile operating environment while proactively adapting our business to the new regulations. In the fourth quarter, we continued to invest in R&D and product innovation and development, offering superior products to adult smokers. We believe our core competencies will enable us to attract continued support from users.
“Looking ahead, given the benefits of the clearer regulatory framework and China’s reopening, we remain confident in the long-term growth of our industry. We are well-positioned to adapt to these shifting market forces and capture new opportunities while further deepening our commitment to honoring our social responsibilities.”
RLX Technology was particularly affected by the vast wave of coronavirus infections as China suddenly relaxed its zero-Covid policy toward the end of 2022. In addition, its gross margin in the fourth quarter suffered as a result of the imposition on Nov. 1, 2022, of a 36 percent excise tax on e-cigarettes in China.
“Despite the headwinds, we strove to improve operational efficiency to mitigate the adverse impact on our business,” said RLX Technology Chief Financial Officer Chao Lu. “As a result, we maintained a healthy level of profitability during 2022. We believe our company’s resilience will enable us to overcome near-term obstacles, and we remain dedicated to creating long-term sustainable value for our stakeholders.”
RELX International recently launched its initiative to boost efforts to prevent youth use of vaping products. The initiative, RELX Pledge, is guided by three key pillars: Guardian program, Golden Shield and Green Shoots, according to a release.
The Guardian program is an initiative that stretches from product development to sales, preventing and discouraging the use of vape products by minors through joint efforts with retailers to step up on-site identification, according to RELX’s head of marketing, Leina Chedid.
“Since our inception, youth prevention has been an integral part of RELX International’s core company values. Our Guardian program applies across all our sales and marketing and supports effective legislation and regulation to prevent the purchase and use of our products by minors,” she said.
The Golden Shield program aims to end the sale of counterfeit products by working closely with investigation firms, e-commerce platforms and local authorities to weed out such products from the market, according to RELX’s global head of external affairs Jonathan Ng. He said that through Golden Shield RELX has assisted in 28 successful cases, removing over 550,000 fake products from the market and over 77,000 websites since 2019.
Green Shoots program is an initiative created to give back to the community, using the brand’s experience to help aspiring entrepreneurs and small business owners get their businesses on the track to growth and success, according to NG
“Startups and small businesses are the economic backbone of societies around the world. As a company that grew from a startup ourselves, we understand the numerous challenges that small businesses encounter daily. Through the Green Shoots program, we hope to share our experience and knowledge to help them get on the right track towards growth and success,” he said. “Protecting minors is an issue we take very seriously, as our pledge commitment shows. We sincerely hope that others in the industry take this lead and also commit to this new era of responsibility.”
Components of the RELX Pledge will be rolled-out globally (excluding Mainland China and the United States) throughout 2021, and will be further enhanced in 2022, according to the release. The RELX Pledge will be localized in countries in which RELX International holds a market presence to account for applicable local customs, cultures and traditions.
RLX Technology is facing a class-action lawsuit started by an investor who claims the Chinese e-cigarette manufacturer overstated its financials and misrepresented potential regulatory risks when it filed the paperwork for its initial public offering (IPO) in the U.S.
Credit: Zerbor
The lawsuit, submitted Wednesday by shareholder Alex Garnett in the U.S. District Court for the Southern District of New York, alleges RLX’s registration statement from last October omitted the impact of ongoing efforts by Chinese regulators to tighten sales of electronic cigarettes, according to an article in The Wall Street Journal.
The case is captioned Garnett v. RLX Technology Inc., No. 21-cv-05125, and is assigned to Judge Paul A. Engelmayer. The RLX Technology class-action lawsuit charges that the company, certain members of its officers and directors, and the underwriters of its IPO with violations of the Securities Act of 1933.
Companies under rules established by the U.S. Securities and Exchange Commission have to disclose any known events or uncertainties that at the time of an IPO caused or were likely to not represent future earnings. RLX stock fell sharply in March after Chinese authorities announced their intent to more heavily regulate the Chinese vapor market. Garnett filed the lawsuit on behalf of other RLX investors.
The lawsuit alleges investors purchased RLX shares at artificially inflated prices, in part because the company omitted and misrepresented information in the registration statement. As the stock price dropped, RLX investors lost hundreds of millions of dollars, the lawsuit states.
At least two other law firms in recent weeks said they are investigating on behalf of investors to determine whether RLX failed to disclose relevant information to investors. Rosen Law Firm and Bronstein, Gewirtz & Grossman, among others, are reportedly seeking RLX investors who want to join the class-action suit.
RLX on June 2 reported revenue of CNY2.4 billion ($366.1 million), for the quarter ended March 31, up from CNY368.6 million the prior-year period. The company booked a net loss of CNY267 million, compared with a profit of CNY12.1 million during the prior-year quarter.
RLX Technology shares took a tumble back in March after China announced it would soon start regulating e-cigarettes, falling more than 40 percent. Over the past week, on expected high earnings, the company’s stock began to recover and was at $11.93 pre-market today after seeing a low $7.89 in March. Today, the company announced its unaudited financial results for the first quarter ended March 31, 2021.
Kate Wang / Credit: RLX
Net revenues were RMB2.4 billion ($366.1 million), up 48.2 percent from RMB1.62 billion in the fourth quarter of 2020. Gross margin was 46 percent, compared to 42.9 percent in the fourth quarter of 2020. GAAP net loss was RMB267 million, compared with RMB236.7 million in the 2020 fourth quarter. Non-GAAP net income was RMB610.5 million, representing an increase of 45.6 percent from RMB419.3 million in the fourth quarter of 2020.
“2021 began, on a solid note, with strong growth in key performance metrics of our business,” said Ying (Kate) Wang, co-founder, chair of the board of directors and CEO of RLX Technology, in a press note. “Specifically, our expansion in distribution network fueled a strong sequential growth, further demonstrating sustained user demand for our e-vapor product portfolio.”
“As the go-to brand of e-vapor products in China, we remain dedicated to investing in deepening our scientific research, improving our technology and product development, expanding our distribution network and retail outlets as well as enhancing supply chain and production capabilities.
“In the first quarter, we opened our Quality Lab to further strengthen our quality assurance and control capabilities, and started developing our second and third exclusive production plants to enhance our production capabilities. We believe we are well positioned to further capture the growth potential in the e-vapor industry in China,” Wang concluded.
During an early morning earnings call, RLX CFO Chao Lu said the company is dedicated to investing in deepening its scientific research, improving its technology and product development, expanding its distribution network and retail outlets, as well as enhancing supply chain and production capabilities.
“Our robust results in the first quarter of 2021 exemplify our strong capabilities in meeting user demands for reliable, innovative and trustworthy products,” said Chao Lu, who joined the company in February. “Building on rapid revenue growth and continued efforts in improving operating leverage, our gross margin and non-GAAP net margin have remained steady in the first quarter. We will continue to pursue user value creation by enhancing our suite of product offerings and strengthening our brand leadership in the market.”
For the second quarter of 2021, RLX Technology expects net revenues to exceed RMB2.85 billion, and expects non-GAAP net income to exceed RMB720 million. The company’s expected GAAP net income will include share-based compensation expenses which depend on the company’s share price. The company currently also expects gross margin to remain steady.of
It has long been anticipated that the tobacco monopoly in China would one day regulate electronic nicotine-delivery systems (ENDS). On March 22, China’s Ministry of Industry and Information Technology (MIIT) and the State Tobacco Monopoly Administration (STMA) released a draft proposal to overhaul rules governing the ENDS market.
Shares in RLX Technology, parent to China’s market-leading RELX e-cigarette brand, plunged in the wake of the announcement. Just two months after the vapor maker’s billion-dollar debut on the New York Stock Exchange, RLX shares fell by nearly 45 percent to $10.69 per share on March 22, having reached a high of $19.46 per share on March 19.
An online copy of the “Decision on Amending the Implementation Regulations of the Tobacco Monopoly Law of the People’s Republic of China” suggests the government intends to regulate ENDS like ordinary cigarettes. That could mean special licensing requirements and much higher taxes of up to 65 percent instead of the 13 percent value-added rate companies currently pay. The ministry is seeking public comments on the draft regulations until April 22. The implications of the draft regulations could be far-reaching. With an estimated 300 million smokers, China is the world’s largest potential market for vapor products.
“In view of the homogeneity of new tobacco products such as e-cigarettes and traditional cigarettes in terms of core ingredients, product functions and consumption patterns, new tobacco products such as e-cigarettes shall be implemented in accordance with the relevant provisions of the Regulations on Cigarettes,” the draft proposal states. “The implementation … will greatly enhance the effectiveness of e-cigarette supervision, effectively regulate e-cigarette production and operation activities, solve the product quality and safety risks of e-cigarettes, false advertising and other issues, and effectively protect the legitimate rights and interests of consumers.”
While the news will have some impact on the global ENDS market, the Chinese manufacturers producing for international markets will likely continue operations. “Depending on how they regulate and to what extremes, it could be devastating to the companies operating in the consumer market in China,” said a representative of a major China-based ENDS manufacturing company, who asked for anonymity. “We expect that there will be players that remain in the market, possibly working alongside the Chinese government in the promotion and sales of vaping products. Right now, we are just waiting for a better understanding of what this means for China’s domestic market. A worst-case scenario would be an outright ban on all products, but this is unlikely.”
The draft proposal states that the regulations will have three purposes:
To promote the rule of law in the supervision of e-cigarettes;
To conform to the characteristics of e-cigarette products and current international regulatory practices;
To enhance the regulatory effectiveness of e-cigarettes.
There are 350 million smokers in China. The country consumes an estimated 1 trillion cigarettes per year. As the largest cigarette market in the world, it would make sense for China to embrace vapor products as a less risky alternative to combustible tobacco. However, with a state-run tobacco monopoly and billions of dollars of taxes at stake, industry experts say the Chinese vapor market is complicated and slow to implement regulations.
Despite impressive growth, China’s vapor market is still insignificant compared to its tobacco market. As of the end of 2019, an estimated 7.4 million people in China were regular e-cigarette users, according to Cloris Li, a spokesperson for Smoore International, parent to FEELM and the Vaporesso brand.
“That means the electronic cigarette industry in China can still potentially convert a large number of smokers,” said Li. “Considering China’s status as the biggest tobacco market, it has enormous potential to continue the current rapid growth rate. In 2018, Chinese e-cigarettes and auxiliary products had a market size of CNY5.52 billion [$848.38 million], and it is predicted to grow more than double to CNY11.28 billion by 2022.”
Vaping products in China are not considered tobacco products like they are in Europe and the United States. Instead, e-cigarettes are considered a consumer goods product. During the E-Vapor and Tobacco Law Virtual Symposium, sponsored by the law firm Keller and Heckman, two industry experts discussed the current vaping and tobacco market in China. One speaker noted that because e-cigarettes do not fall under the definition of tobacco as defined under the country’s monopoly laws, China, at the time, had yet to implement any major restrictions on vapor products.
With little regulatory guidance, China’s vapor market has been booming both in terms of domestic consumption and manufacturing exports. China, where the modern e-cigarette was invented, has become the manufacturing hub of the fast-growing global vapor industry. This has led to the rise of several major corporations, including the world’s most valuable vapor company, Smoore International.
When Smoore went public in mid-2020, its stock grew by nearly 150 percent on its opening day of trading on the Hong Kong Exchange. Smoore stock did not suffer after the MIIT announcement. The value of Chinese e-cigarette maker RLX Technology, parent to the RELX brand, jumped 146 percent during its trading debut in January 2021 after raising $1.4 billion in its U.S. initial public offering, before dropping drastically after the MIIT announcement.
In its prospectus, RLX stated that vaping products only have a 1.2 percent penetration rate in China compared with 32.4 percent in the U.S. The Electronic Cigarette Industry Committee estimated China’s 2020 e-cigarette sales at CNY14.5 billion, an increase of 30 percent from 2019 (CNY11.2 billion). By comparison, the U.S. e-cigarette market in 2019 was worth $5.34 billion and is expected to reach $6.50 billion in 2020, according to Grandview Research.
RLX is doing its part to accelerate e-cigarette sales in China. In early 2020, the company launched its two flagship RELX vape shops in Shanghai and Beijing. Today, RELX has partnered with 110 authorized distributors to supply its products to over 5,000 RELX-branded partner stores and over 100,000 other retail outlets nationwide, covering over 250 cities in China, according to its prospectus. Revenue for the company nearly doubled in the nine months ended Sept. 30, 2020, to $324 million, with a net income of $16 million.
Along with the Smoore and RLX initial public offerings, China’s vaping industry continues to attract lots of attention from the capital market, according to Li, it is unknown if the proposed regulations will hamper that attention. “This year, in 2021, many more second-tier brands are spearheading efforts to acquire financing to expand the market [in China], especially markets in lower tier cities,” Li said. “For example, MOTI intends to invest cny1 billion to open 10,000 stores. Snow Plus even announced its intent to distribute future stock shares to distributors to open more stores.”
To date, the Chinese government has passed two major pieces of legislation for vapor products. In 2018, it made it a crime to sell a vapor product to anyone under 18 years of age. In November 2019, the government prohibited online sales of vapor products to prevent youth initiation. In 2020, the country passed the Law of the People’s Republic of China on the Protection of Minors. That law is aimed at preventing parents or other guardians from “indulging or instigating minors” to smoke or vape.
The Chinese government wants to avoid the rapid rise in youth vaping that occurred in the U.S. If the U.S. figures replicated domestically in China, it could harden Beijing’s stand on the category, according to a 2021 report from ECigIntelligence. For now, e-cig usage among Chinese youth remains relatively low. A 2019 survey by the Chinese Center for Disease Control and Prevention found that 8.6 percent of high school students aged between 15 years and 18 years in China had used “tobacco” products during the previous 12 months.
Between July and August 2020, authorities collected comments on a bill that would restrict the public use of e-cigarettes nationwide and establish specific areas where vaping would be allowed. “The amendments to the Law on the Protection of Minors would prohibit vape stores from operating near schools, ban e-cigarette sales to minors and vaping in schools, kindergartens and anywhere else where young people are gathered,” the report states. “The bill would also require vendors to ask for an identification document if in doubt about a purchaser’s age while shop owners would be required to put up a prominent ‘no sales to minors’ sign. If the proposals are adopted and e-cigarettes are regulated under the same umbrella as traditional tobacco products, it would be China’s first national law specifically restricting e-cigarettes.”
In 2020, the Chinese government also floated the idea of banning vapor products completely. Another proposal suggested that e-cigarettes should be regulated as tobacco products while prohibiting their promotion as smoking cessation products. The authors of the study point out that Chinese rules can impact a market virtually overnight. Prior to the country’s ban of online sales of vapor products, there were hundreds of thousands of products available on the internet. The day after the announcement, an online search for e-cigarettes would have yielded zero results. “When the authorities do put something in writing and announce something that they want to put into effect, it can happen oftentimes almost immediately,” the report states.
While the Chinese government is yet to release any vapor regulations concerning components and manufacturing, several industry players have come together to self-regulate the industry. In 2017, draft regulation or standards were developed on the industry level. While not mandatory national standards, the rules give a good sense of what the industry considers sensible in terms of specifications, requirements and limitations.
“The same holds true with the group standards concerning the raw materials, about the diluents, the flavorings, and some requirements as it relates to physical, chemical, hazardous substances. They go into some test methods,” a presenter at the Keller and Heckman seminar said. “Not always, but typically, the authorities will look at these group standards, voluntary standards, and start to adopt some of that language when they make mandatory national standards. So, having a good sense of what these [recommended standards] look like … that would be important.”
Further complicating China’s vapor market is the China National Tobacco Company (CNTC), the state-run tobacco monopoly. If the monopoly chooses to enter the vapor market, it could devastate the independent vape shops that proliferate the Chinese market. “The state monopoly has yet to signal clearly how it will regulate e-cigarettes or whether it will sell them. If it does, it has the power to regulate its competitors out of the market,” the report states.
The industry is acutely aware of this risk. In a November 2019 interview with Reuters, one investor in a Chinese e-cigarette startup compared the combined regulatory and competitive threat posed by CNTC as “a knife on the neck.” CNTC is a source of major funding for the Chinese government. Its contribution accounted for an estimated 5.45 percent of the country’s tax revenue in 2018. That amounts to cny10.8 trillion, according to media reports.
If CNTC were to enter the vapor market, the monopoly’s existing 5 million domestic retail outlets could present a major challenge for private vape shop owners. Kate Wang, CEO for RELX, told Reuters (before the draft regulations were announced) that she’s “not worried” about the government’s impact on the sector. The products will continue to remain available, she said, “as long as there’s proof that this is a good solution for smokers.”
Chinese e-cigarette maker RLX Technology, parent to the RELX brand, jumped 146 percent in its trading debut after raising $1.4 billion in its U.S. initial public offering.
Creit: RELX
RLX Technology’s American depositary shares closed at $29.51 Friday, giving the company a market value of about $46 billion. Backed by Sequoia Capital China, the company sold 116.5 million shares for $12 a piece on Thursday after marketing them for $8 to $10.
The IPO was led by Citigroup Inc. and China Renaissance Holdings Ltd. The company’s ADS, each representing one ordinary share, are trading on the New York Stock Exchange under the symbol RLX.
The IPO, the first major U.S. listing this year by a China-based company, signals continuing investor demand, according to Bloomberg.
RLX, founded in 2018, is China’s largest e-cigarette maker with 62.6 percent of the country’s market, according to a report by China Insights Consultancy cited in the company’s IPO prospectus.
China is the world’s largest potential vaping market, with an estimated 286.7 million adult smokers in 2019, RLX said in its prospectus. But vaping products only have a 1.2 percent penetration rate, compared with 32.4 percent in the U.S.
