RLX Technology Inc.

RLX Technology Inc. (NYSE: RLX) is an e-vapor firm established in China. From scientific research to technology and product development, supply chain management, and offline distribution, the Company is involved in the e-vapor business. The Company's products are largely marketed through distributors, merchants, and customer service professionals at its offline retail shops.

Key Highlights

• Strong financial results: The company reported solid performance in FY21, with Net revenue increased by 123.1% to USD1.337 billion. Furthermore, US GAAP net income was RMB 2028.1 million (USD318.3 million) compared to a net loss of RMB236.7 million in FY20.
• Robust margins and cash balance: RLX liquidity has significantly been enhanced because of the IPO. As of December 31, 2021, the company had cash and cash equivalent of RMB14,857.8 million (USD 2.33 billion compared with only RMB3,421.4 million as of December 31, 2020. The net margin for RLX in FY21 was 23.8%, which was significantly higher compared to the industry median of 9.5%. The company delivered an ROE of 27% compared to the industry median of negative 12.7%. Strong margin against peers and Return on Shareholders’ money reflects company’s competitive advantage against its peers.
• Shares repurchase announcement: On December 8, 2021, RLX announced a share repurchase program under which the company may repurchase up to US$ 500 million of its shares until December 31, 2023. This announcement is significant because as of the current market price the market capitalization of RLX Technologies Inc. is USD 2.52 billion, which means almost 20% of the total share is targeted to be repurchased.
• China tech sell-off not over yet: Beijing’s ongoing crackdown on the tech industry has not yet over and it is tough to predict what the real risk premium for Chinese equities is right now because the market is still in a price-finding process. Further, resurgence in COVID-19 cases in China and lockdown measures introduced by the government is once again throwing a lot of uncertainties for corporates.
• Bearish Technical Indicators: On daily price chart, RLX shares are hovering below its crucial long-term as well as short-term support levels of 200-day and 50-day SMAs, a bearish indicator. Further, the leading momentum indicator, 14-day RSI hovering in neutral zone with bearish bias at 44.16.

Technical Chart (as on April 25, 2022, 11:50 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Conclusion

RLX Technology Inc has built upon strong fundamentals. However, the most critical determinant for RLX performance in near term is China's current scenario, which is experiencing a severe wave of coronavirus, forcing Shanghai and now Beijing into a rigorous lockdown. Also, what should be the real risk premium for Chinese equities is tough of estimate right now because the market is still in a price-finding process.

Also, from the technical standpoint, its shares are hovering in a a long-term bearish zone. Hence, We recommend a "Watch" rating on the stock at the current market price of USD 1.87 as of April 25, 2022 at 11:50 AM PDT). We will revisit this stock in next couple of weeks once market volatility cools off.

Technical analysis summary

* Current market price as of April 25, 2022, at 11:50 AM PDT.

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

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