RLX Technology: Bright Spots Amid Results Miss

Core Viewpoint - RLX Technology's Q2 2024 financial results fell short of expectations, but there are positive developments in China's regulatory environment and the company's R&D capabilities [1][4]. Financial Performance - RLX's Q2 2024 revenue grew by +65.9% YoY to RMB627.2 million, attributed to international expansion, despite a -1.8% miss against consensus forecasts [2][3]. - The company's normalized EPS increased by +164.5% YoY to RMB0.164, indicating improved supply chain efficiency and strategic workforce management [2]. - RLX's gross margin declined from 26.1% in Q2 2023 and 25.9% in Q1 2024 to 25.2% in Q2 2024, primarily due to changes in revenue composition and the introduction of lower-priced products [3]. Regulatory Environment - The regulatory landscape for e-cigarette product approvals in Mainland China has improved, with nine new flavors approved in the first half of 2024, enhancing RLX's competitive position against illegal products [4]. R&D Capabilities - RLX has filed over a thousand patents globally, with a new product development cycle of less than three months, showcasing its strong R&D capabilities [4]. - The company’s medium-to-long term prospects are favorable due to its R&D strengths and the improved regulatory environment, despite a significant revenue drop in FY 2023 [4]. Valuation and Future Outlook - RLX's P/E ratio and projected earnings growth rate are aligned, with a consensus FY 2023-2026 normalized EPS CAGR forecast of +15.4% and a normalized P/E metric of 15.5 times [5].