RELX Lists on the NYSE, Surges 145.92% on Debut to Reach a $45.8 Billion Valuation

On January 23, 2021, on January 22, Eastern Time, the e-cigarette company, Fog Core Technology (RLX.N)(RLX), the operating entity of the e-cigarette brand RELAX, officially landed on the New York Stock Exchange with the stock code RLX. The opening price was US$22.34, an increase of 86% from the issue price of US$12. As of the close, YuelX's share price surged 145.92% to US$29.54, with a market value of US$45.8 billion. It only took Wang Ying, founder of the Yuexie RELX brand, three years to successfully complete the listing.
 
On December 31, 2020, Fog Core Technology officially submitted a prospectus to the US Securities and Exchange Commission. The lead underwriters of the IPO were Citigroup and Huaxing Capital. The company will raise $1.4 billion through a U.S. IPO offering of 116.5 million ADSs.

According to the prospectus, the team shares held by Yuexie founder Wang Yinghe totaled 58.7%, which translates into a market value of US$26.9 billion. At the same time, Yueshi's equity design adopts an AB share mechanism, and Yueshi's management voting rights are as high as 90%.

In terms of equity structure, CEO Wang Ying holds 58.7%, and two founders Jiang Long and Wen Yilong hold 9.9% and 6.5% respectively; source capital holds 10.7%, and Sequoia China holds 4.9%.

As of September 2020, Fogxin Technology has cooperated with 110 authorized distributors, owning more than 5000 specialty stores and more than 100,000 retail stores. Judging from sales data, Yueshi sells more than 20 million cigarette bombs a month, with annual revenue exceeding 2 billion yuan.

As an e-cigarette product, cigarette rods and cigarettes are its main core components. Among them, cigarette rods can be reused, while disposable cigarette cartridges are consumables and contain nicotine ingredients, which are easy to become addicted, and consumers need to buy them repeatedly. Therefore, the repurchase rate of e-cigarettes is very high, which also leads to the equally strong user retention of e-cigarettes.

According to data in the prospectus, from 2018 to September 30, 2020, Yueshi sold a total of 10.4 million sets of tobacco rods and 204.4 million cigarette bombs. Among them, in the third quarter of 2020, the sales volume of Yuexie's tobacco rods and cigarettes were 3 million units and 61.9 million units respectively. This means that after business is running faster and faster, Yueshi can sell more than 20 million cigarette bombs in a month.

At the revenue level, Yueshi's revenue in 2018, 2019, and the first three quarters of 2020 was 133 million yuan, 1.549 billion yuan, and 2.201 billion yuan respectively, with the same alarming growth rate. At present, in terms of sales, Yuexie's market share in closed atomizing e-cigarettes is as high as 62.6%.

In addition, Yueshi's profitability is equally terrible. Based on the disclosed data, the gross profit margin of Yuexie products remains at around 40%.

Yue Shi's net profit in 2019 and the first three quarters of 2020 was 47.75 million yuan and 109 million yuan respectively. Excluding the influence of factors such as employee options, Yuexie's adjusted net profit for the first three quarters of 2020 was 382 million yuan, and the net profit margin was as high as 17%.
 
According to data reported by CIC, the size of China's e-cigarette market was US$600 million in 2016 and has grown to US$1.5 billion in 2019. It is estimated that by 2023, the domestic e-cigarette market will reach US$11.3 billion, with a compound annual growth rate of 65.9%. It can be seen that this is one of the few and vast new markets.

According to the prospectus, as of September 30, 2020, Joy has partnered with 110 authorized distributors to provide products to more than 5,000 RELX brand partner stores and more than 100,000 other retail stores covering more than 250 cities across the country.

In terms of sales channels, before the ban, Yueshi's overall online channels accounted for 31.1%, and the proportion of offline channels increased to 68.7%. After the introduction of the online sales ban policy, the Yueyuan line returned to zero, and the proportion of sales in offline channels increased to 98.2%.

As a partner of China's largest e-cigarette manufacturer, well-known e-cigarette brand Yuesha, and Simmore International, the first e-cigarette company(according to the morning of January 25, 2021, its market value exceeded 500 billion), RelX took less than three years., revenue of billions, and has been successfully listed on the New York Stock Exchange.

Founder Wang Ying once worked for Uber and Didi

The prospectus shows that Wang Ying, founder, chairman and CEO of Wogxin Technology, and her team hold 58.7%, while the other two founders, Jiang Long and Wen Yilong, actually hold 9.9% and 6.5% respectively.
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In terms of institutional shareholders, Deep Technology Linkage, a subsidiary of Source Capital, holds 10.7%, and Sequoia China holds 4.9%.

Zhongtai Securities Research Report shows that in September 2018, Fogcore Technology completed 36 million yuan in angel round financing and 12.3 million US dollars in Series A financing; in November 2018, it completed 24.9 million US dollars in Series A+ financing; In February 2019, it completed 22.1 million US dollars in Series B financing; in April and May 2019, it completed 75 million US dollars in Series C financing; in August 2019 and January 2020, it completed US$107.3 million in Series C+ financing; In September 2020, a certain number of Angel Series and Series A shares were re-designated 2, and US$182.4 million in Series D financing was completed. Before applying for listing, Fogxin Technology's total financing amount exceeded US$420 million.

relx's founding team comes from OPPO, Huawei, Chinese Academy of Sciences, L'Oréal, Procter and Gamble, and Uber. Wang Ying has worked for P & G, Bain Consulting, Uber, and Didi, and served as the head of Uber's China region. After the merger of Didi and Uber, in October 2016, Wang Ying was appointed as the general manager of Didi's Uber business unit. In the following nearly two years, the Uber App was closed, and the Premium Business led by Wang Ying was taken over by Didi. She was then assigned to work in the time-sharing business with a bleak future.

In January 2018, Wang Ying decided to make e-cigarettes and founded Fog Core Technology. Three months later, Yueshi mass production. In 17 months, Yueshi's e-cigarette cartridges production increased by 160 times. A layman led a group of executives with no background in e-cigarettes. In a year and a half, he became the largest e-cigarette manufacturer in China, and its Yueshi became the number one brand of atomized e-cigarettes in China.

Less than three years after its establishment, it is a partner of Simmore International with revenue of billions

According to the CIC report, in terms of retail sales, the company was the number one e-cigarette brand in China in 2019 and the first three quarters ended September 30, 2020, with Yueshi's market shares of 48.0% and 62.6% respectively. According to a survey conducted by CIC in September 2020, Yueshi ranks first in brand awareness, with a mental share of 67.6% among users of electronic atomization products in China.

Fog Core Technology said in its IPO prospectus that China is the world's largest potential e-cigarette market. As of 2019, there are an estimated 286.7 million smokers in China, and the industry's potential market size is 112.9 billion yuan. However, the penetration rate of e-cigarette products is only 1.2%, compared with 32.4% in the United States. Compared with the United States, there is still a large gap in the penetration rate of e-cigarettes in my country, which also means that the e-cigarette industry has considerable future development space.

Less than three years after its establishment, Wuxin Technology's revenue has reached billions of yuan, and it has become profitable in its second year of establishment.

Prospectus data shows that in 2018, 2019 and the first three quarters of 2020, the company's operating income was 132 million yuan, 1.549 billion yuan, and 2.201 billion yuan respectively, and net profit was-287,000 yuan, 47.75 million yuan, and 109 million yuan respectively. In less than three years, Wogxin Technology generated revenue of 3.882 billion yuan and net profit of 157 million yuan.
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It is worth mentioning that Simore International, the leading e-cigarette OEM company listed in Hong Kong stocks in July 2020, is the contract manufacturer of Wogxin Technology and a third-party operating partner of the exclusive production plant. A major source of income for Simmore International is the OEM of e-cigarette products from Fog Core Technology. The company's prospectus disclosed that in the first three quarters of 2020, purchases from Simmore International accounted for 79% of its total purchases.

Regulatory pressure shifts to fight offline gross profit margin declines

Data shows that in 2018, the proportion of revenue directly sold to consumers through e-commerce platforms and to third-party e-commerce dealers accounted for 33.5% and 6.3% respectively, with amounts of 44.41 million yuan and 8.35 million yuan respectively.

On August 28, 2018, the State Administration for Market Regulation and the State Tobacco Monopoly Administration issued the "Notice on Prohibiting the Sale of E-Cigarettes to Minors", urging e-cigarette production and sales companies or individuals to promptly close e-cigarette Internet sales websites or clients; Urge e-commerce platforms to close e-cigarette shops in a timely manner and remove e-cigarette products from shelves in a timely manner, and urge e-cigarette production and sales companies or individuals to withdraw e-cigarette advertisements posted through the Internet.

On November 1, 2019, the State Tobacco Monopoly Administration and the State Administration for Market Regulation jointly issued the "Notice on Further Protecting Minors from E-Cigarettes." The "Notice" once again mentioned that e-cigarettes must not be sold through online channels.

In July 2020, the State Tobacco Monopoly Administration once again launched a two-month special rectification of e-cigarettes, continuously strengthening industry regulations on e-atomized cigarettes.# p#pagination title #e#
  RELX Refill the aerosol cigarette counter
At present, cities such as Hangzhou, Shenzhen, Nanning, and Wuhan have clearly included e-cigarettes in the scope of regulations prohibiting smoking in public places. Beijing also invited experts to discuss e-cigarettes in July 2020, and may include e-cigarettes in the scope of control in the future.

Under the pressure of supervision, e-cigarette brands were forced to switch from some online sales to all offline sales. The prospectus shows that the number of authorized dealers of Wogxin Technology increased from 41 in the first three quarters of 2019 to 110 in the first three quarters of 2020.

This policy directly led to the decline in the proportion of Winecore Technology's revenue from direct sales to consumers and third-party e-commerce dealers through e-commerce platforms in 2019 to 18.1% and 8%. By Q3 of 2020, the company basically only has Online distributors, the single sales channel of offline distributors accounts for 98.2% of total revenue.

After moving offline, Fogxin Technology's gross profit margin dropped from 44.7% in 2018 to 37.5% in 2019, and was 37.9% in the first three quarters of 2020. In this regard, the company explained that it was mainly due to the significant increase in the proportion of offline dealers, and the company's pricing was more relaxed when selling in this channel to ensure that dealers and retailers could obtain sufficient profits.

Revenue in the third quarter and fourth quarter of 2019 was 556 million yuan and 410 million yuan respectively. As costs and expenses are still at a high level, Q4 Fog Core Technology lost 50.3 million yuan in 2019.

“Tobacco identity may significantly affect performance

Supervision in overseas markets has also become stricter.

In early 2020, the U.S. Food and Drug Administration (FDA) issued a ban on the sale of most flavors of e-cigarettes. Only tobacco and menthol flavors can continue to be sold legally. At the same time, new tobacco products need to pass a Tobacco Pre-Market Application (PMTA) before they can be legally sold in the United States.

Fog Core Technology launched an application for the US PMTA project in September 2020. So far, only three companies in the world have obtained PMTA certification and approval, while six e-cigarette companies in China have tried to pass PMTA applications, but so far they have not been approved.

It is worth mentioning that at present, e-cigarette bodies are classified as electronic products, and cigarette oil is food. E-cigarettes are only taxed on general consumer goods, and their burden is much lower than that of traditional tobacco. They evade consumption tax (tax rate of 36%) and tobacco leaf tax (tax rate of 20%), which account for 60% of the total tax payment. According to the report of the Economic Research Institute of the State Tobacco Monopoly Administration, my country's comprehensive cigarette tax rate is 66.6%.

According to the official website of the National Standardization Administration Committee, as of now, the mandatory national standard project for e-cigarettes organized and drafted by the State Tobacco Monopoly Administration is still under review. Once e-cigarettes are classified as tobacco in the future, tax fees will increase significantly, which will have a significant impact on the company's performance.