RELX Technology (NYSE: RLX) had a strong IPO debut, gaining a whopping 146% on it’s first day of trading Friday, January 22, 2021. RLX is the largest chinese vaping firm with a commanding 62.6% market share. The company which was initially targeted at $8-10 was later priced at $12.00/share. RLX finished its impressive first day of trading at $29.51/share on huge volume, posting 95,762,062 shares traded. The market cap of the company based on its closing shares price is now a whopping $45.838 billion which means a lot of future expectations are built into the price. The IPO raised $1.4 billion through the sale of 116.5 million shares. This represented 7.5% of the 1.55 billion outstanding shares. The Chinese vaping company is growing very fast and booked revenue of $341 million in the first 3 quarters of 2020 which was $176 million or over double the same period. So RLX had a fantastic start, but investors want to know what’s next, and what catalysts will continue to propel the stock higher. They also want to know what the implications are to the rest of the sector?
Strong Financial Performance Leading Up to IPO
The company posted a $16.0 mil net profit for the 9 month period ending Sept 30th, 2020 which works out to an EPS of $.011. They have gross margins of 37.9%, but they were down from the prior year as they switched their business model from online sales to offline distributors. Revenues for the 9 month period were $318 million which was essentially double the 9 month period from the previous year. What is interesting is that in 2018 they were spending only 1.5% of sales on R&D expenses and now they are running at 4.1%. In the use of proceeds the company plans on using 30% of the proceeds for R&D. That is likely to be a monster increase as a percentage of sales. Given the CEO’s historical focus on innovation investors can be assured that this essentially means that there are going to be some new product announcements in the near future now that they are public. It’s also conceivable that they expand their brand with new products.