On Monday, Citi updated its stance on RLX Technology (NYSE: RLX), increasing the price target to $2.76 from the previous $2.40. The firm has kept a Buy rating on the stock.
This revision comes after RLX Technology reported a non-GAAP net profit of Rmb430 million in the fourth quarter of 2023, surpassing both market and Citi's expectations. The company's stronger-than-anticipated financial performance is largely due to effective expense management and a one-time investment gain.
In the same report, RLX Technology showed a return to non-GAAP operating profitability, with a profit of Rmb76 million, following three consecutive quarters of operating losses. The company's revenue saw a 4% quarter-over-quarter increase to Rmb520 million, which aligns with projections. This uptick in revenue is partly attributed to RLX Technology's market entry into North and Southeast Asia towards the end of 2023.
Citi anticipates that RLX Technology will accelerate its international expansion starting in the first quarter of 2024, focusing initially on Asia and subsequently on Europe. The firm predicts that the non-China business of RLX Technology will likely contribute over 60% of the company's sales in 2024 and enhance profit margins. The consolidation of existing overseas business by Relx Inc. by the end of 2025 is also expected to support this growth.
Furthermore, Citi remarks on RLX Technology's competitive product offerings and distribution capabilities as key drivers for its potential market share increase on a global scale. The analyst firm has initiated a 90-day positive catalyst watch and has fine-tuned its earnings forecasts for RLX Technology, including introducing estimates for the fiscal year 2026. The expansion into international markets is seen as a positive development for RLX Technology, especially considering the slow recovery of the e-vapor business in China.
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