Vaping leader RLX wins over skeptics with global diversification

The company reported that more than 70% of its third-quarter revenue came from outside its challenging home China market

Key Takeaways:

• Acquisitions in Asia and Europe lifted RLX’s revenue by 49% in the third quarter, sparking a rally for its shares
• The company’s gross margin improved by 4 percentage points in the quarter, as its revenue gains outpaced a smaller rise in its production costs

By Edith Terry

Wang Ying, who goes by the English name Kate, is perhaps the global vaping industry’s most glamorous CEO. The veteran of DiDi Global, Uber China and Bain & Co., with an MBA from Columbia University, saw the potential for e-cigarettes and vaping to liberate smokers from tobacco cigarettes, after the father of a colleague died of cancer. She went on to found her company, RLX Technology Inc. (RLX.US), which was valued at nearly $35 billion at the time of its New York IPO in 2021 at the height of the global vaping craze.

The company’s business peaked that year, when it reported revenue of 8.5 billion yuan ($1.2 billion) and net income of 2 billion yuan. But China was already cracking down on vaping at that time, levying new taxes and other restrictions, causing RLX’s revenue to crater to a low of 1.2 billion yuan in 2023. That was when Wang began focusing on the international market, where similar crackdowns were occurring but was friendlier due to the absence of a powerful rival that it faced at home in China’s state-owned tobacco monopoly.

And quarter by quarter, Wang has been proven right. The most recent evidence comes from RLX’s third-quarter results, reported last week. While its latest quarterly revenue of 1.13 billion yuan ($159 million) was still well off previous highs, the figure was up nearly 50% year-on-year. The company’s gross margin also improved by 4 percentage points year-on-year to 31.2%, and its net income rose 22% to 206.8 million yuan.

“This performance … validates the scalability of our globalization strategy and the outstanding technological innovation that secures our leadership in the e-vapor sector,” Wang said, adding that the company now gets more than 70% of its revenue from international markets.

A big part of the revenue gain in the latest quarter came from a European vaping company acquired in March, whose results were included in RLX’s for the first time. Asian markets also delivered “strong organic growth,” according to CFO Lu Chao.

Adding more joy for investors, RLX declared a cash dividend of $0.10 per American Depository Share (ADS). Together with $300 million in share repurchases through Sept. 30, Lu noted that RLX has returned over $500 million to shareholders through repurchases and dividends.

The flurry of good news lit a fire under RLX shares, which jumped 10.3% to $2.57 after the announcement, making them one of the New York Stock Exchange’s best performers that day. Still, the company’s current market cap of $3.2 billion is less than one-tenth of its peak, though its price to earnings (P/E) ratio looks quite strong at 31.5.

Analysts surveyed by Yahoo Finance are largely positive on the company, despite the heavy regulatory scrutiny it faces in almost every major market. Four out of five rate it a “buy,” with only one recommending a “hold.”

Compared to its peers, RLX is also doing well. Ispire Technology (ISPR.US), which makes vaping cartridges, disposables and batteries, has lost 76% of its market value since it listed in April 2023 and is losing money. Smoore International (6969.HK), which mostly makes vapers on a contract basis, trades at a quarter of its IPO price, though it’s valued even higher than RLX with a P/E ratio of about 60.

Falling China reliance

The most astonishing thing about RLX’s results is the rapid shift in its focus away from its original China market. A year ago, five countries in Asia-Pacific accounted for more than half of its revenue for the quarter. Wang said the international portion continues to grow, and that China now accounts for just 29% of its total.

In addition to revenues from its new European subsidiary, Wang credited the company’s strong quarterly gains to its Asia-Pacific franchise retail model that unites independent big stores “under a cohesive brand to entail retail execution, amplify visibility, and elevate user experience.”

In Indonesia, one of its biggest markets, where RLX claims to be the leading close-pod vape seller, the company has been promoting a franchise model with zero-partnership fees for new members that it believes has big potential. Indonesia had 67.3 million smokers and only 1.55 million vapers in 2020, compared to 24.5 million smokers and 1.9 million vapers in the Philippines, according to ECigIntelligence. Growth in vape use between 2018 and 2024 in Indonesia was 110%, according to the same source.

According to its advertising materials, RLX Global has 15,000 points of sales under its RELX brand name, with the largest concentration in Europe, at 10,842. Indonesia is the next largest, with 6,577 points of sale.

Wang said she believes that the vaping market will continue to grow as more cigarette users switch to electronic products and abandon tobacco. The global cigarette market will generate revenue of $872.8 billion this year, and was growing annually at a rate of 2.39%, according to data aggregator Statista. It estimates the e-cigarette market will be worth $27.2 billion this year, with a higher growth rate of 3.69%, seeming to validate Wang’s confidence.

But regulation remains one of the industry’s biggest wild cards. New national rules that took effect in Indonesia last year treat vaping products almost the same as cigarettes, with requirements for package warnings and a minimum purchase age of 21, higher than the 18 required for cigarette users. Thailand, Singapore, Cambodia and Laos have outlawed vaping products completely. Hong Kong has banned e-cigarettes, vapes, vape juice and heated tobacco products since 2022. Similar restrictions exist in Japan, although Korea is more relaxed.

U.S. tariffs against many countries have also introduced a new degree of volatility and unpredictability to supply chains for raw materials and products, especially from China. RLX has its own e-liquid factory in its hometown of Shenzhen. As it expands its retail network across the globe to diversify beyond a difficult China market, U.S. tariffs that are especially focused on China may force the company to move production offshore. Rival Ispire has already taken such a step with its vaping hardware, which it now produces in Malaysia.

Regulation and tariffs are likely to be two of RLX’s biggest challenges going forward, though the worst of both factors could be in the past. That could at least provide some better visibility for RLX, helping to stabilize its ship as the vaping industry matures and finds a steadier place in the market alongside traditional tobacco products.

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