Rising Health Awareness And Urbanization Will Boost E-Vapor Markets

Key Takeaways

• RLX's rapid international expansion and integration into local retail chains are expected to drive stronger revenue growth and reduce earnings risk beyond market expectations.
  
• Diversification into multi-category smokeless products and regulatory shifts favoring compliance position RLX for premium brand growth and higher recurring margins.
  
• Illegal products, regulatory pressures, shifting consumer preferences, execution risk abroad, and ESG-driven product changes all threaten RLX Technology's revenue stability and market share.

Catalysts

Through its subsidiaries, develops, manufactures, and sells e-vapor products in the People's Republic of China and internationally.

• Analyst consensus views RLX's international expansion as significant, but this likely understates both the magnitude and pace of global market share gains given RLX's strong early traction in Europe and Asia coupled with tight local retail integration, which should drive outsized revenue growth and operational leverage.
  
• While the consensus recognizes RLX's innovation in high-power, high-volume products and localized offerings, it fails to account for the company's aggressive push into multi-category (oral nicotine, heat-not-burn, sustainable cartridges), which positions RLX to capture growth across the entire smokeless alternative spectrum and potentially command higher gross margins.
  
• RLX's acquisition and integration of leading international e-vapor chains not only accelerate market penetration but also embed the company directly into foreign value chains as retailer and distributor, which should structurally boost recurring high-margin revenue and de-risk earnings volatility.
  
• Accelerating regulatory clarity and enforcement globally are forcing out illegal operators more rapidly than anticipated, shifting rapid share to compliant leaders like RLX and driving a step-change in both Chinese and overseas compliant market revenues, directly benefiting top-line and market share.
  
• Heightened global preference for reduced-risk, sustainable nicotine products-amid urbanization and rising incomes-positions RLX to grow its premium brand and recurring customer base faster than market forecasts, translating to durable revenue growth, gross margin expansion, and sustained operating cash flow.

RLX Technology Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on RLX Technology compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming RLX Technology's revenue will grow by 28.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 24.9% today to 22.3% in 3 years time.
• The bullish analysts expect earnings to reach CN¥1.4 billion (and earnings per share of CN¥1.09) by about August 2028, up from CN¥726.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 31.6x on those 2028 earnings, up from 28.8x today. This future PE is lower than the current PE for the US Tobacco industry at 34.9x.
• Analysts expect the number of shares outstanding to decline by 0.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.79%, as per the Simply Wall St company report.

RLX Technology Future Earnings Per Share Growth

Risks

• The overwhelming dominance of illegal and noncompliant products in China, which currently account for over 80% to 90% of the domestic market, poses a persistent threat to RLX Technology's ability to grow legal market share and could restrict long-term revenue expansion and profit sustainability.
  
• Tightening global and domestic regulations, especially around product standards and excise taxes, continue to create an unpredictable operating environment that could increase compliance costs and restrict the company's ability to innovate or launch new products, thereby pressuring future gross margins and earnings growth.
  
• The rising consumer preference for health and wellness lifestyles and the emergence of alternative nicotine delivery systems-such as heat-not-burn and modern oral nicotine products, with the latter currently being the fastest-growing segment-may erode demand for e-vapor devices, potentially leading to a structural decline in RLX Technology's core revenues.
  
• The company's current internationalization and diversification efforts, while expanding into new markets such as Europe, face early-stage execution risk and are relatively unproven, suggesting that RLX Technology's earnings will remain highly sensitive to its core Chinese market and vulnerable to geographic concentration risk in revenue and profits.
  
• Environmental concerns and increased ESG pressures against disposable vaping products are accelerating a shift in consumer and regulatory preferences toward more sustainable alternatives; as the company transitions to cartridge-based technology, failure to execute effectively could result in loss of market share and shrinking net margins if disposed products are banned or heavily restricted.

Valuation

• The assumed bullish price target for RLX Technology is $4.01, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of RLX Technology's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $4.01, and the most bearish reporting a price target of just $2.34.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CN¥6.2 billion, earnings will come to CN¥1.4 billion, and it would be trading on a PE ratio of 31.6x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $2.4, the bullish analyst price target of $4.01 is 40.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.