Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<ul>
<li>After a lengthy period of weakness which saw shares decline more than 62% to ¥1,812 per share by June 2020, <a href="https://www.smartkarma.com/entities/japan-tobacco-inc" target="_blank" data-smartkarma-citation="entities:13498:1" rel="noopener">Japan Tobacco (2914 JP)</a> seems to have turned a corner with the share price trending upwards (for a considerable period) for the first time in a 5-6 year time period.</li>
<li>JT’s valuation looks cheap and we think that there is potential for multiple expansion alongside a dividend hike and strong OP performance in the second half of the year.</li>
</ul>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/223/975/original/image_96854996521629110963958.png?1629110966" class="editor-image img-responsive" data-smartkarma-image-id="223975"></figure>


After a lengthy period of weakness which saw shares decline more than 62% to ¥1,812 per share by June 2020, Japan Tobacco (2914 JP) seems to have turned a corner with the share price trending upwards (for a considerable period) for the first time in a 5-6 year time period.
JT’s valuation looks cheap and we think that there is potential for multiple expansion alongside a dividend hike and strong OP performance in the second half of the year.



Equity Capital Markets

RLX Technology Inc / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/rlx-technology-inc" target="_blank" data-smartkarma-citation="entities:31113:1" rel="noopener">RLX Technology Inc (RLX US)</a>, China’s number one branded e-vapor company with a market share of 62.6% of the closed-system e-vapor products, has announced its indicative pricing range at $8-10 per ADS which implies an EV between $11.4-14.3bn.</p><p>At the top end of the IPO price range, our 2022 revenue estimate of $867.7m (Revenue CAGR of 56% through 2019-22) places RLX on 16.5x 2022 EV/Sales. With revenue growth of 93% YoY in 9M20, domestic market share of 62.6% and an overseas footprint in 100 countries by the end of 2020, we believe our revenue estimate is quite reasonable.</p><p>E-vapor OEM, <a href="https://www.smartkarma.com/entities/smoore-international" target="_blank" data-smartkarma-citation="entities:28241:1" rel="noopener">Smoore International (6969 HK)</a>, whose 2019-22 revenue CAGR is 35% is currently trading at 2022 EV/Sales of 19.0x, 15% above RLX’s 2022 EV/Sales multiple. Therefore, RLX’s 16.5x 2022 EV/Sales multiple does not seem so unreasonable, especially considering the current behavior of capital markets.</p><p>The IPO valuation looks attractive and possibly have a decent upside in the short term. However, there are some significant risks associated with investing in RLX which investors need to be aware of before deciding to subscribe to the IPO.</p>

RLX Technology Inc (RLX US), China’s number one branded e-vapor company with a market share of 62.6% of the closed-system e-vapor products, has announced its indicative pricing range at $8-10 per ADS which implies an EV between $11.4-14.3bn.At the top end of the IPO price range, our 2022 revenue estimate of $867.7m (Revenue CAGR of 56% through 2019-22) places RLX on 16.5x 2022 EV/Sales. With revenue growth of 93% YoY in 9M20, domestic market share of 62.6% and an overseas footprint in 100 countries by the end of 2020, we believe our revenue estimate is quite reasonable.E-vapor OEM, Smoore International (6969 HK), whose 2019-22 revenue CAGR is 35% is currently trading at 2022 EV/Sales of 19.0x, 15% above RLX’s 2022 EV/Sales multiple. Therefore, RLX’s 16.5x 2022 EV/Sales multiple does not seem so unreasonable, especially considering the current behavior of capital markets.The IPO valuation looks attractive and possibly have a decent upside in the short term. However, there are some significant risks associated with investing in RLX which investors need to be aware of before deciding to subscribe to the IPO.

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<div><p><a href="https://www.smartkarma.com/entities/rlx-technology-inc" target="_blank" data-smartkarma-citation="entities:31113:1" rel="noopener">RLX Technology Inc (RLX US)</a> is the leading branded e-vapour company in China with 62.6% of the market share of closed-system e-vapour products as measured by retail sales value in 9M20, according to CIC. RLX has launched its IPO at a price range of $8.00-10.00 per ADS. At the mid-point of the IPO price range, RLX will raise net proceeds of $1.0 billion at a market cap of $14.0 billion. </p></div><div><div>
<p>In <a href="https://www.smartkarma.com/insights/rlx-technology-ipo-initiation-smoke-signals" target="_blank" data-smartkarma-citation="insights:46758" rel="noopener">RLX Technology IPO Initiation: Smoke Signals</a>, we noted that while regulatory uncertainty will remain an overhang, RLX is an attractive play on the rapid growth of the e-vapour market in China. In <a href="https://www.smartkarma.com/insights/rlx-technology-vs-smoore-which-is-a-better-play-on-the-vaping-market" target="_blank" data-smartkarma-citation="insights:46851" rel="noopener">RLX Technology Vs Smoore: Which Is a Better Play on the Vaping Market?</a>,  we compared RLX and <a href="https://www.smartkarma.com/entities/smoore-international" target="_blank" data-smartkarma-citation="entities:28241:1" rel="noopener">Smoore International (6969 HK)</a>’s business model and fundamentals. Our analysis showed that subject to the IPO valuation, investors largely face a trade-off between RLX’s high growth and lower regulatory risk vs Smoore’s scale and higher profitability. </p>
<p>The proposed IPO price range is more than double the valuation of the last raise - Series D-2 at $36.2 per share in September 2020 ($3.62 per share post the 10-for-1 share subdivision effected on 11 January 2021). Each ADS represents one Class A ordinary share. RLX partly justifies the significant bump on the 71% rise in Smoore's share price in 4Q20. RLX will be invariably benchmarked to Smoore on a relative valuation basis which will helpfully provide support for the proposed IPO price range. </p>
<div class="content-highlight"><p>Overall, our valuation analysis suggests that RLX is fully priced at the IPO price range and we would be inclined to participate at most at the low-end of the IPO price range.</p></div>
</div></div>

RLX Technology Inc (RLX US) is the leading branded e-vapour company in China with 62.6% of the market share of closed-system e-vapour products as measured by retail sales value in 9M20, according to CIC. RLX has launched its IPO at a price range of $8.00-10.00 per ADS. At the mid-point of the IPO price range, RLX will raise net proceeds of $1.0 billion at a market cap of $14.0 billion. 
In RLX Technology IPO Initiation: Smoke Signals, we noted that while regulatory uncertainty will remain an overhang, RLX is an attractive play on the rapid growth of the e-vapour market in China. In RLX Technology Vs Smoore: Which Is a Better Play on the Vaping Market?,  we compared RLX and Smoore International (6969 HK)’s business model and fundamentals. Our analysis showed that subject to the IPO valuation, investors largely face a trade-off between RLX’s high growth and lower regulatory risk vs Smoore’s scale and higher profitability. 
The proposed IPO price range is more than double the valuation of the last raise - Series D-2 at $36.2 per share in September 2020 ($3.62 per share post the 10-for-1 share subdivision effected on 11 January 2021). Each ADS represents one Class A ordinary share. RLX partly justifies the significant bump on the 71% rise in Smoore's share price in 4Q20. RLX will be invariably benchmarked to Smoore on a relative valuation basis which will helpfully provide support for the proposed IPO price range. 
Overall, our valuation analysis suggests that RLX is fully priced at the IPO price range and we would be inclined to participate at most at the low-end of the IPO price range.


<p><a href="https://www.smartkarma.com/entities/rlx-technology-inc" target="_blank" data-smartkarma-citation="entities:31113:1" rel="noopener">RLX Technology Inc (RLX US)</a> is the leading branded e-vapour company in China with a 62.6% of the market share of closed-system e-vapour products as measured by retail sales value in 9M20, according to CIC. It is seeking is raise as much as $1 billion through an NYSE IPO, according to press reports.</p><p>In <a href="https://www.smartkarma.com/insights/rlx-technology-ipo-initiation-smoke-signals" target="_blank" data-smartkarma-citation="insights:46758" rel="noopener">RLX Technology IPO Initiation: Smoke Signals</a>, we noted that while regulatory uncertainty will remain an overhang, RLX is an attractive play on the rapid growth of the e-vapour market in China. Investors can also gain exposure to this secular growth trend through <a href="https://www.smartkarma.com/entities/smoore-international" target="_blank" data-smartkarma-citation="entities:28241:1" rel="noopener">Smoore International (6969 HK)</a>, which has stormed ahead around 5x from its IPO price.</p><div class="content-highlight"><p>In this note, we compare RLX and Smoore’s business model and fundamentals. Subject to the proposed IPO price range, investors largely face a trade-off between RLX’s high growth and lower regulatory risk vs Smoore’s scale and higher profitability, in our view. </p></div>

RLX Technology Inc (RLX US) is the leading branded e-vapour company in China with a 62.6% of the market share of closed-system e-vapour products as measured by retail sales value in 9M20, according to CIC. It is seeking is raise as much as $1 billion through an NYSE IPO, according to press reports.In RLX Technology IPO Initiation: Smoke Signals, we noted that while regulatory uncertainty will remain an overhang, RLX is an attractive play on the rapid growth of the e-vapour market in China. Investors can also gain exposure to this secular growth trend through Smoore International (6969 HK), which has stormed ahead around 5x from its IPO price.In this note, we compare RLX and Smoore’s business model and fundamentals. Subject to the proposed IPO price range, investors largely face a trade-off between RLX’s high growth and lower regulatory risk vs Smoore’s scale and higher profitability, in our view. 

RLX Technology Vs Smoore: Which Is a Better Play on the Vaping Market?

Smoore International Holdings / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/smoore-international" target="_blank" data-smartkarma-citation="entities:28241:1" rel="noopener">Smoore International (6969 HK)</a> is the global leader in the manufacturing of vaping devices and components, having a market share of 16.5% in 2019. The company raised HK$918 million in an IPO and started trading on 10th July, and in its first nine trading days, the shares have risen by 206.5% from the IPO offer price. On 22nd July, Smoore warned that, as a result of fair value changes for convertible preferred shares and promissory notes and share-based payments as detailed below, net profit for the six months to 30th June will decline by 94.% year-on-year.</p>
<p>It is surprising that these fair-value adjustments were not revealed or anticipated in the prospectus. With Smoore’s multiples now exceeding those of its infamous peer, JUUL during its peak, in the DETAIL below we give the case for taking some profits.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/147/892/original/image_68355711821595747120205.png?1595747120" width="624" height="207" class="editor-image img-responsive" data-smartkarma-image-id="147892"></figure>
<div class="content-caption"><em>Company Disclosures</em></div>

Smoore International (6969 HK) is the global leader in the manufacturing of vaping devices and components, having a market share of 16.5% in 2019. The company raised HK$918 million in an IPO and started trading on 10th July, and in its first nine trading days, the shares have risen by 206.5% from the IPO offer price. On 22nd July, Smoore warned that, as a result of fair value changes for convertible preferred shares and promissory notes and share-based payments as detailed below, net profit for the six months to 30th June will decline by 94.% year-on-year.
It is surprising that these fair-value adjustments were not revealed or anticipated in the prospectus. With Smoore’s multiples now exceeding those of its infamous peer, JUUL during its peak, in the DETAIL below we give the case for taking some profits.

Company Disclosures

Smoore International: Trading Well Over JUUL's Peak Multiples

United Kingdom

British American Tobacco P.L.C. operates as a holding company for a group of companies that manufactures, markets, and sells cigarettes and other tobacco products including cigars and roll-your-own tobacco.

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British American Tobacco (BATS LN)

Japan Tobacco: Turning a Corner

After a lengthy period of weakness which saw shares decline more than 62% by June 2020, JT seems to have turned a corner with the share price...

Oshadhi Kumarasiri

RLX Technology IPO: Risk of Unknowns

RLX Technology, China’s number one branded e-vapor company with a market share of 62.6%, has announced its indicative pricing range at $8-10 per...

Oshadhi Kumarasiri

RLX Technology IPO: Valuation Insights

RLX has launched its IPO to raise net proceeds of $1.0 billion. Overall, RLX is fully priced at the IPO price range and we would be inclined to...

Arun George

RLX Technology Vs Smoore: Which Is a Better Play on the Vaping Market?

We compare RLX and Smoore’s business model and fundamentals. Investors largely face a trade-off between RLX’s high growth and lower reg risk vs...

Arun George

Smoore International: Trading Well Over JUUL's Peak Multiples

Smoore International (6969 HK) is the global leader in the manufacturing of vaping devices and components, having a market share of 16.5% in 2019....

Oshadhi Kumarasiri

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