RLX Technology Inc (RLX) 2024 Q1 法說會逐字稿

Hello, ladies and gentlemen, thank you for standing by for RLX Technology, Inc.'s first-quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. After management's remarks, there will be a question-and-answer session. Today's conference call is being recorded and is expected to last for about 40 minutes. I will now turn the call over to your host, Mr. Sam Tsang, Head of Capital Markets for the company. Please go ahead, Sam.

女士們、先生們，大家好，感謝您出席 RLX Technology, Inc. 的 2024 年第一季財報電話會議。此時，所有參與者都處於只聽模式。管理層發言後，將進行問答環節。今天的電話會議正在錄音中，預計持續約 40 分鐘。我現在將電話轉交給東道主，該公司資本市場主管曾森先生。請繼續，山姆。

Thank you very much. Hello, everyone, and welcome to RLX Technology's first-quarter 2024 earnings conference call. The company's financial and operational results were released through PR Newswire services earlier today and have been made available online. You can also view the earnings press release by visiting the IR section of our website at ir.relxtech.com. Participants on today's call will include our Chief Executive Officer, Ms. Kate Wang; our Chief Financial Officer, Mr. Chao Lu; and myself, Sam Tsang, Head of Capital Markets.

非常感謝。大家好，歡迎參加RLX科技2024年第一季財報電話會議。該公司的財務和營運業績今天稍早透過美通社服務發布，並已在網路上發布。您也可以造訪我們網站 ir.relxtech.com 的 IR 部分，查看收益新聞稿。今天電話會議的參與者包括我們的執行長王凱特女士；我們的財務長陸超先生；還有我本人，資本市場主管 Sam Tsang。

Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor Provisions of the US Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, target, estimate, intend, believe, potential, continue or other similar expressions. Forward-looking statements involve inherent risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which factors are beyond our control.

在我們繼續之前，請注意，今天的討論將包含根據 1995 年美國私人證券訴訟改革法案的安全港條款做出的前瞻性陳述。這些陳述通常包含「可能」、「將」、「期望」、「目標」、「估計」、「打算」、「相信」、「潛力」、「繼續」等字眼或其他類似表達。前瞻性陳述涉及固有風險和不確定性。這些陳述的準確性可能會受到許多業務風險和不確定性的影響，這些風險和不確定性可能導致實際結果與預期或預期的結果有重大差異，其中許多因素超出了我們的控制範圍。

The company is affiliated advisers and representatives do not undertake any obligations to update this forward-looking information, except as required under the applicable law. Please note that RLX Technologies earnings press release and this conference call include discussions of unaudited GAAP financial measures, as well as unaudited non-GAAP financial measures. RLX press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to Ms. Kate Wang. Please go ahead.

該公司的附屬顧問和代表不承擔更新此前瞻性資訊的任何義務，除非適用法律要求。請注意，RLX Technologies 收益新聞稿和本次電話會議包括對未經審計的 GAAP 財務指標以及未經審計的非 GAAP 財務指標的討論。RLX 新聞稿包含未經審計的非 GAAP 措施與未經審計的 GAAP 措施的調整表。我現在將電話轉給王女士。請繼續。

Thank you, Sam. And thanks, everyone, for making time to join our earnings conference call today. I will begin with an overview of our international initiatives, followed by a discussion of illicit products' impact on our business before I hand it over to our CFO for a review of our financials. 2024 is off to a solid start. Our operations in Southeast and North Asia are running smoothly and our international expansion is progressing well. Since terminating our non-compete agreement with RLX International in November 2023, our team has been diligently researching the regulatory environment and competitive landscapes of the markets worldwide to inform our strategic blueprint.

謝謝你，山姆。感謝大家今天抽空參加我們的財報電話會議。我將首先概述我們的國際舉措，然後討論非法產品對我們業務的影響，然後將其交給我們的財務長審查我們的財務狀況。 2024 年有一個好的開始。我們在東南亞和北亞的業務運作順利，國際化擴張進展順利。自 2023 年 11 月終止與 RLX International 的競業禁止協議以來，我們的團隊一直在努力研究全球市場的監管環境和競爭格局，為我們的策略藍圖提供資訊。

After thoroughly evaluating various markets, we are ready to determine our next steps and develop tailored growth strategies for each region. With our leading product development capabilities and broad portfolio of premium products for adult smokers, we are confident that we can meet each market's unique needs. We plan to expand into additional regions, and we'll keep you updated on our progress in future calls. On product diversification, we are broadening our portfolio, in response to rising living costs that are impacting users both domestically and overseas.

在徹底評估各個市場後，我們準備好確定下一步行動，並為每個地區制定量身定制的成長策略。憑藉我們領先的產品開發能力和針對成年吸菸者的廣泛優質產品組合，我們有信心滿足每個市場的獨特需求。我們計劃擴展到其他地區，我們將在未來的電話會議中向您通報我們的最新進展。在產品多元化方面，我們正在擴大我們的產品組合，以應對影響國內外用戶的生活成本上升。

By offering more SKUs across a wider price spectrum, we can cater to diverse consumer needs and capture additional demand. In overseas markets, we are expanding our offerings beyond closed systems, starting with e-liquid products. And we plan to introduce new open system devices at a later stage. Our recent launch of new e-liquid products in Southeast Asia has been well received, showing promising initial results.

透過在更廣泛的價格範圍內提供更多 SKU，我們可以滿足多樣化的消費者需求並捕捉額外的需求。在海外市場，我們正在將我們的產品擴展到封閉系統之外，從電子煙油產品開始。我們計劃在後期推出新的開放系統設備。我們近期在東南亞推出的新煙油產品廣受好評，並取得了良好的初步成果。

Regarding regulatory environments in overseas markets, we are seeing the early impact of bans on disposables. Retailers and adult users are shifting from disposables to other subcategories, such as pod system. As the leading global players in the pod system market, these regulatory changes present prime opportunities for us to increase our future market share. We are poised to capitalize on this transition, with an effective marketing strategy and pipelines of compliant products that meet adult smokers needs at every price point.

關於海外市場的監管環境，我們看到了一次性用品禁令的早期影響。零售商和成人用戶正在從一次性用品轉向其他子類別，例如 Pod 系統。作為吊艙系統市場的全球領導者，這些監管變化為我們增加未來市場份額提供了絕佳機會。我們準備好利用這一轉變，透過有效的營銷策略和合規產品系列來滿足成年吸煙者在各個價位的需求。

Turning to the impact of illicit products, domestically, illicit products continue to challenge confined products. However, we are encouraged by Chinese authorities' announcement of another round of special actions to crack down on illicit products in March. This year's initiative, spanning four months, one month longer than last year's, will focus on improving case investigation and handling and building an effective enforcement system for the industry. We are pleased to see China's regulatory authorities tackling these serious issues, though there is still a long way to go.

談到非法產品的影響，在國內，非法產品繼續挑戰限制產品。然而，我們對中國當局在三月宣布的另一輪打擊非法產品的特別行動感到鼓舞。今年的專案行動歷時四個月，比去年增加了一個月，重點是加強案件查辦，建立有效的產業執法體系。我們很高興看到中國監管機構正在解決這些嚴重問題，儘管還有很長的路要走。

We are already seeing some positive outcomes. For instance, authorities in Zhejiang province successfully cracked a case involving the entire supply chain of counterfeit e-cigarettes from product to sales. They dismantled one illegal manufacturer and two production lines, seizing 40 sets of production equipment, over 35,000 disposable e-cigarettes, over 30,000 cartridges, over 2,900 devices, and one million e-cigarette accessories. The seized goods were valued at more than RMB10 million and the total amount involved in the investigation exceeds RMB100 million.

我們已經看到了一些正面的成果。例如，浙江省相關部門成功破獲了一起假冒電子煙從產品到銷售的整個供應鏈案件。搗毀非法生產企業1家、生產線2條，查獲生產設備40餘台套、一次性電子煙3.5萬餘支、煙彈3萬餘支、裝置2900餘件、電子煙配件100萬餘件。查獲貨物價值逾1000萬元，涉案總金額逾億元。

Additionally, authorities in Gansu province recently uncovered an illegal e-cigarette manufacturing and sales enterprise operating online. They dismantled three illegal manufacturing sites, three storage sites, and six scale shops, seizing over 2,800 disposable e-cigarettes and over 290,000 cartridges. The total value of these goods exceeds RMB8.8 million, with the total amount involved in the investigation surpassing RMB110 million. As an industry-leading and socially responsible company, RLX remains committed to advocating for a well-regulated e-vapor industry and collaborating with regulators on creating an orderly and healthy market.

此外，甘肅省相關部門近日查獲一家網路非法電子煙生產、銷售企業。搗毀非法生產場所3個、儲存場所3個、規模商店6個，查獲一次電子煙2800餘支、煙彈29萬餘支。這些貨物總價值超過880萬元人民幣，涉案總金額超過1.1億元。作為業界領先且具有社會責任感的公司，RLX始終致力於倡導規範的電子煙產業，並與監管機構合作創建有序健康的市場。

Internationally, authorities are also increasingly crackling down on illicit products. In the United states, for example, the state of Florida has implemented a registry for disposable vapes. Starting March 1, 2025, manufacturers that sell prohibited products in the States will face a $1,000 daily fine per product until it is removed from the market. These regulations also apply to retailers, wholesalers, and distributors that ship products into Florida.

國際上，當局也加強打擊非法產品。例如，在美國，佛羅裡達州已經實施了一次性電子煙的登記制度。自 2025 年 3 月 1 日起，在美國銷售違禁產品的製造商將面臨每件產品每日 1,000 美元的罰款，直至將其從市場上移除。這些規定也適用於將產品運送到佛羅裡達州的零售商、批發商和分銷商。

Additionally, anyone who sells a nicotine product, including vape to someone under 21 for [first four-thirds] or subsequent time will face a third degree felony charge, punishable by up to $5,000 in fines and five years in prison. In the UK, authorities are cracking down on unlicensed imports and searches in use vaping. Both border control and local authorities are working to seize unauthorized counterfeit products. The government is back takes to announce new rules for the industry, which could include a ban on disposable vapes, a licensing scheme for retailers, and new taxes, among other regulatory measures.

此外，任何向 21 歲以下人士銷售尼古丁產品（包括電子煙）[前三分之四]或此後的人將面臨三級重罪指控，可處以最高 5,000 美元的罰款和五年監禁。在英國，當局正在打擊未經許可的進口和搜查正在使用的電子煙。邊境管制和地方當局正努力查獲未經授權的假貨。政府重新宣布該行業的新規則，其中可能包括禁止一次性電子煙、零售商許可計劃、新稅收等監管措施。

As a legitimate player, we view these actions as positive developments that will contribute to a healthy and orderly market, benefiting our future business development. In conclusion, our strategic expansion initiatives are already yielding positive results, setting the stage for future success. We remain confident that the e-vapor products will continue to gain traction as a harm reduction tool for adult smokers, even as regulations evolve worldwide. Within all standing products portfolio, agile operations, and deep industry expertise, we are ready to create and seize opportunities on a global stage.

作為合法參與者，我們認為這些行動是積極的發展，將有助於健康有序的市場，有助於我們未來的業務發展。總之，我們的策略擴張計劃已經產生了積極的成果，為未來的成功奠定了基礎。我們仍然相信，即使全球範圍內的法規不斷變化，電子煙產品作為成年吸菸者的減害工具將繼續受到關注。憑藉所有常備產品組合、敏捷營運和深厚的行業專業知識，我們已準備好在全球舞台上創造和抓住機會。

With that, I will now turn the call over to our CFO, Chao Lu. He will elaborate further on some of our last quarter's initiatives and go over our operational and financial results in more detail.

現在，我將把電話轉給我們的財務長呂超。他將進一步闡述我們上季的一些舉措，並更詳細地審查我們的營運和財務表現。

Thank you, Kate, and hello, everyone. Before I start the detailed discussion of our financials, please note, unless otherwise stated, all the financials I will present today are in RMB terms. First, I am pleased to report that our strategic expansion into Southeast and North Asia has continued to deliver positive outcomes this quarter. Total net revenues increased to RMB552 million, marking our fifth consecutive quarter of revenue growth.

謝謝你，凱特，大家好。在開始詳細討論我們的財務數據之前，請注意，除非另有說明，否則我今天介紹的所有財務數據均以人民幣計價。首先，我很高興地報告，本季我們在東南亞和北亞的戰略擴張繼續取得積極成果。總淨收入增至 5.52 億元，標誌著我們的收入連續第五個季度增長。

The inherent benefits of geographic diversification, along with our reduced reliance on domestic market, have allowed us to capitalize on opportunities arising from harm reduction initiatives in the international markets. We are increasingly capturing organic growth from adult smokers transitioning from combustible cigarettes to reduced-risk products like e-vapors. We have a solid blueprint for ongoing expansion in place and we are optimistic that our initiatives will continue driving progress across our financial metrics. We will provide further details in the coming quarters as we continue to assess various markets' growth potential, competitive landscapes, and regulatory environments.

地理多元化的固有好處，加上我們對國內市場的依賴減少，使我們能夠利用國際市場減少危害措施所帶來的機會。我們越來越多地捕捉成年吸菸者從可燃捲菸轉向電子煙等低風險產品的有機成長。我們已經制定了持續擴張的堅實藍圖，並且我們樂觀地認為我們的舉措將繼續推動我們的財務指標取得進展。隨著我們繼續評估各個市場的成長潛力、競爭格局和監管環境，我們將在未來幾季提供更多詳細資訊。

Turning to profitability, our overall gross profit margin for the first quarter expanded year-over-year from 24.2% to 25.9%. Despite the excise taxes on e-vapor products in China, our ongoing efforts to enhance supply chain efficiency, improved product designs, and increased the utilization of our exclusive manufacturing plants are having a positive impact. Notably, the gross profit margin of our domestic business has improved quarter over quarter since the second quarter of 2023. We recorded a total operating loss of RMB52 million for the first quarter.

獲利方面，第一季整體毛利率較去年同期從24.2%擴大至25.9%。儘管中國對電子煙產品徵收消費稅，但我們不斷努力提高供應鏈效率、改進產品設計以及提高我們獨家製造工廠的利用率，正在產生積極影響。值得注意的是，自2023年第二季以來，我們國內業務的毛利率較上季改善。第一季我們的營業虧損總額為 5,200 萬元。

However, excluding the impact of share-based compensation, we achieved a positive non-GAAP operating profit of RMB23 million, marking our second consecutive quarter of non-GAAP profitability at the operating level. This represents a significant year-over-year turnaround compared to a non-GAAP operating loss of RMB133 million in the first quarter of 2023. Our cost reduction efforts and positive profit contributions from outside China were the main drivers of this quarter's success. Driven by our turnaround in operating level profit, our non-GAAP net income for the first quarter of 2024 increased by 13% year-over-year to RMB208 million.

然而，剔除股權激勵的影響，我們實現了非 GAAP 營業利潤 2,300 萬元人民幣，這標誌著我們連續第二個季度實現非 GAAP 營業利潤盈利。與 2023 年第一季非 GAAP 營運虧損 1.33 億元人民幣相比，這意味著年比大幅改善。我們降低成本的努力和來自中國以外地區的積極利潤貢獻是本季成功的主要推動力。受營運水準利潤改善的推動，2024年第一季非美國通用會計準則淨利潤年增13%至人民幣2.08億元。

For the same period, our non-GAAP basic net income per ADS was RMB0.166, and non-GAAP diluted net income per ADS was RMB0.159. Our cash flow and balance sheet remain healthy and strong, supported by enhanced working capital and inventory management. We recorded an operating cash inflow of RMB4 million in the first quarter of 2024, a meaningful improvement from operating cash outflow of RMB231 million in the same period last year. Additionally, we are currently experiencing a negative cash conversion cycle.

同期，我們的非公認會計原則每美國存託憑證基本淨利潤為人民幣0.166元，非美國通用會計準則稀釋每美國存託憑證淨利潤為人民幣0.159元。在加強營運資本和庫存管理的支持下，我們的現金流量和資產負債表保持健康強勁。2024年第一季度，我們錄得經營性現金流入人民幣400萬元，較去年同期經營性現金流出人民幣2.31億元大幅改善。此外，我們目前正經歷負現金轉換週期。

Inventory turnover days stood at just 34 days in the first quarter of 2024, significantly reduced from over 100 days in the first quarter of 2023. As of March 31, 2024, our total financial assets, including cash and cash equivalent, restricted cash, and various forms of short-term and long-term deposits, and inventories totaled RMB14.7 billion. In summary, we are confident that we are on the right track with our international expansion. Moving forward, we will continue to optimize costs and efficiency as we enter new markets and scale our operations.

2024年第一季庫存週轉天數僅34天，較2023年第一季的100多天大幅減少。截至2024年3月31日，我們的金融資產總額為人民幣147億元，包括現金及現金等價物、限制性現金以及各種形式的短期和長期存款以及存貨。總而言之，我們相信我們的國際擴張正走在正確的軌道上。展望未來，我們將在進入新市場和擴大營運規模時繼續優化成本和效率。

Our goal remains to deliver premium products to users, while creating sustainable, long-term value for our shareholders. This concludes our prepared remarks today. I will now open the call to questions. Operator, please go ahead.

我們的目標仍然是為用戶提供優質產品，同時為股東創造可持續的長期價值。我們今天準備好的演講到此結束。我現在開始提問。接線員，請繼續。

(Operator Instructions) Charlie Chen, China Renaissance.

（操作員說明） Charlie Chen，華興資本。

(spoken in Chinese) Thanks, management, for taking my questions. I've got two questions regarding the domestic market. First of all, can you share with us a little bit more on the momentum of monthly sales in domestic markets. Is there any marginal changes, month over month, that you can see and share with us?

（中文） 謝謝領導回答我的問題。我有兩個關於國內市場的問題。首先請您跟我們分享國內市場的月銷售動能。您是否可以看到並與我們分享每個月的細微變化？

And also, based on current run rates, do you have any new guidance or new sales target for the full year? So that's the first question. And the second one is about domestic product pipeline, can management share with us a little bit more color on new directions or requirements that you heard from the regulators in terms of flavor, packaging, technology requirements, et cetera. Thank you very much.

另外，根據目前的運行率，您對全年有什麼新的指導或新的銷售目標嗎？這是第一個問題。第二個是關於國內產品管道，管理階層能否與我們分享您從監管機構聽到的關於風味、包裝、​​技術要求等方面的新方向或要求。非常感謝。

Thank you very much, Charlie, for your question. So the first question is about our monthly sales trend, as well as our target internally. So the monthly sales of our China business has been relatively stable. So each month sales could be subject to calendar effects.

查理，非常感謝你的提問。所以第一個問題是關於我們每個月的銷售趨勢，以及我們內部的目標。所以我們中國業務的月銷售額一直比較穩定。因此每個月的銷售量可能會受到日曆的影響。

For example, Chinese New Year and public holidays and the overall trend has not changed. So as you may aware, there is a special action led by the Chinese authorities has been ongoing, and we hope that positive trends will emerge as this initiative concludes. We are also working on launching new products with new design and characteristics to compete effectively with illicit products. We are innovating and expanding our offerings to meet our user demands.

例如春節和公共假期，整體趨勢沒有改變。如你所知，中國當局主導的一項特別行動一直在進行中，我們希望這一行動結束後能夠出現積極的趨勢。我們也致力於推出具有新設計和特性的新產品，以與非法產品進行有效競爭。我們正在創新和擴展我們的產品以滿足用戶需求。

We will share more details once our new products launch. So overall, our China business remains on track with our annual expectations and targets, and we remain optimistic about the market as the regulatory actions take effect and our new products enter the markets. So, the second question is about, is there any regulatory change, especially regarding like flavors or other requirements? So, in late April, so there are a few draft consultation papers being published by the Chinese regulators.

新產品推出後，我們將分享更多詳細資訊。因此，總體而言，我們的中國業務仍符合我們的年度預期和目標，隨著監管行動的生效和我們的新產品進入市場，我們對市場保持樂觀。那麼，第二個問題是，是否有任何監管變化，特別是在類似口味或其他要求方面？因此，四月下旬，中國監管機構發布了一些諮詢文件草案。

So the first change is concerns about the product approval. So compared with the previous versions published in early 2022, the new draft did not include certain clauses related to the exports of e-cigarette products. Also, it has stated that if an applicant is under investigation for suspected illegal activities, the regulators will not accept such an applicant's technical review application. And the second change is mainly concerned the marketing campaigns.

所以第一個變化是對產品審批的擔憂。因此與2022年初發布的先前版本相比，新草案並未包含與電子煙產品出口相關的某些條款。同時也表示，申請人因涉嫌違法行為正在接受調查的，監管機構將不受理申請人的技術審查申請。第二個變化主要是行銷活動。

So all marketing activities must be registered on the national transaction platform and not violate applicable regulation. So we believe the draft consultation papers are aimed to promote a healthier and orderly industry development. Thank you for your questions.

因此，所有行銷活動都必須在國家交易平台上註冊，且不得違反適用法規。所以我們認為徵求意見稿的目的是為了促進業界更健康有序的發展。謝謝您的提問。

Thank you.

謝謝。

Lydia Ling, Citi.

莉迪亞林，花旗銀行。

Hi, management, this is Lydia from Citi. Can you hear me?

嗨，管理階層，我是花旗銀行的莉迪亞。你聽得到我嗎？

Yeah, we can hear you.

是的，我們能聽到你的聲音。

Okay, great. Thank you. Thanks, management. So, Lydia from Citi. And so here, I have two questions. The first one is on your overseas market. And we want to know that if you could share that slide of the year-to-date growth trend for the market that you already entered.

好的，太好了。謝謝。謝謝，管理層。那麼，花旗銀行的莉迪亞。在這裡，我有兩個問題。第一個是你的海外市場。我們想知道您是否可以分享您已進入的市場今年迄今為止的成長趨勢幻燈片。

And also, we want to know that if you have seen any impact from the weak macro on this category consumption. And we understand that you entered this new market step-by-step. So actually want to check if any new markets are consolidated in the first quarter and what would be your expansion plan in the second quarter? So this is my first question on the overseas market.

此外，我們想知道您是否看到疲軟的宏觀經濟對此類消費的影響。我們了解您是一步步進入這個新市場的。因此，實際上想檢查第一季是否整合了任何新市場以及第二季的擴張計劃是什麼？這是我關於海外市場的第一個問題。

And then my second question is, on the China market, as you just also mentioned that the ongoing measures against the illegal products in China market. So wanted to know that what could be the rescue to the second quarter sales trend in China. So is actually improving trends in the second quarter should be expected? Thank you.

我的第二個問題是關於中國市場的，正如你剛才也提到的，針對中國市場上的非法產品正在採取的措施。所以想知道什麼可以拯救中國第二季的銷售趨勢。那麼第二季的改善趨勢其實是應該預期的嗎？謝謝。

Thank you very much, Lydia, for your questions. So regarding your first question is about the international markets. So we have made significant progress in strengthening our presence in Southeast and North Asia and have yet to enter new markets in the first quarter. So our non-China business has maintained steady growth, despite the first quarter traditionally being a low season for this category, primarily due to weather-affected store traffic and the holy month of Ramadan in Southeast Asia.

非常感謝莉迪亞提出的問題。所以關於你的第一個問題是關於國際市場的。因此，我們在加強東南亞和北亞業務方面取得了重大進展，但第一季尚未進入新市場。因此，我們的非中國業務保持了穩定成長，儘管第一季傳統上是該類別的淡季，主要是由於天氣影響商店客流量和東南亞的齋月。

So we are also aware of the weak macro of the international markets. The rising living cost encourages more adult smokers to consider value for money nicotine alternatives like e-vapor products. The trend of switching from cigarettes to harm reduction nicotine products like e-cigarettes has been clear and the rise in living costs could also help accelerate the switch and user penetration. Our expansion strategy calls for prudent and calculated entries into new markets in the second quarter.

所以我們也意識到國際市場宏觀疲軟。生活成本的上升鼓勵更多的成年吸菸者考慮物有所值的尼古丁替代品，例如電子煙產品。從香菸轉向電子煙等減害尼古丁產品的趨勢已經很明顯，生活成本的上升也可能有助於加速這種轉變和使用者滲透。我們的擴張策略要求在第二季謹慎、有計劃地進入新市場。

We are working on expanding to certain countries in this quarter, starting with Asia. So overall, we are optimistic about the growth potential of our international markets by capturing increasing market share to drive our growth in this quarter and beyond. So regarding your second question about the special action and also what's the impact towards the second quarter, so the special action against illegal products in China are positive developments for industry. This year's special action is more comprehensive, with four months of inspection and evaluation, a month longer than that of last year.

我們正努力在本季擴展到某些國家，首先是亞洲。因此，總體而言，我們對國際市場的成長潛力持樂觀態度，透過擴大市場份額來推動本季及以後的成長。關於第二個問題，特別行動以及對第二季度的影響是什麼，中國針對非法產品的特別行動對該行業來說是積極的發展。今年的專案行動更加全面，檢查評估為期四個月，比去年延長了一個月。

The extended period allows for a more thorough inspection of the value chain from manufacturing and wholesale to retail. This year's special action focuses on multiple aspects, ensuring all entities fully comply with the regulations and cracking down on unlicensed entities. For manufacturers like us, this requires complying with production and operational standards and robust product quality assurance systems. Also, authorities identify unlicensed entities' activities, collaborate with our departments to shut down illegal operations and pursue legal responsibility for such violations.

延長的期限可以對從製造、批發到零售的價值鏈進行更徹底的檢查。今年專案行動聚焦多方面，確保各主體全面合規，嚴厲打擊無證經營。對於像我們這樣的製造商來說，這需要遵守生產和營運標準以及強大的產品品質保證系統。此外，相關部門也將查明無證經營者的活動，配合我們的部門制止非法經營活動，並追究此類違法行為的法律責任。

So we fully support and are thankful to the Chinese authorities for their efforts to address these issues and promote a well-regulated e-vapour industry. So for the second quarter, we expect these actions can help stabilize the markets and remain optimistic that these efforts can support our growth and achieve our goals, although it is still a bit early to predict specific outcomes towards the second quarter. Thank you for your questions.

因此，我們完全支持並感謝中國當局為解決這些問題並促進電子煙行業規範化所做的努力。因此，對於第二季度，我們預計這些行動有助於穩定市場，並對這些努力能夠支持我們的成長並實現我們的目標保持樂觀，儘管現在預測第二季度的具體結果還為時過早。謝謝您的提問。

Peihang Lyu, CICC.

呂培航，中金公司。

Okay, thank you, management. This is Peihang from CICC. I have two questions here: my first question is, what is the current level of the illicit market share in the domestic market, and how does the company perceive your share in the legitimate market? And the second question is that, given the intensifying competition in the overseas market, we have also noticed increasing pressure on product ASP this year. So how does the company view the price competition of the industry and its impact on your business? Thank you.

好的，謝謝領導。我是中金公司的北行。我這裡有兩個問題：第一個問題是，目前國內市場的非法市佔率是多少，公司如何看待你們在合法市場的佔有率？第二個問題是，鑑於海外市場競爭的加劇，我們也注意到今年產品平均售價的壓力越來越大。那麼公司如何看待產業的價格競爭及其對你們業務的影響呢？謝謝。

Thank you very much, Peihang, for your questions. So the first question is about the illegal markets in China. So we do see that the illicit market continues to pose great challenges in the China market. Some market estimates suggest that illegal products account for the majority of the total market size.

非常感謝北航的提問。第一個問題是關於中國的非法市場。因此，我們確實看到非法市場繼續對中國市場構成巨大挑戰。一些市場估計顯示非法產品佔市場總規模的大部分。

These black market transactions are conducted through social media platforms, which is difficult to monitor and trace. Regulators are tracking down on illicit activities in the industry, including the two cases we mentioned in the opening remarks and special actions are still ongoing. We hope better enforcement and new product launches will reduce the illicit market share. In terms of our market share in the legal markets, we are a leading brand and maintain a stable market share over the last 12 months.

這些黑市交易是透過社群媒體平台進行的，難以監控和追蹤。監管機構正在追查該行業的非法活動，包括我們在開場白中提到的兩起案件，專案行動仍在進行中。我們希望更好的執法和新產品的推出將減少非法市場份額。就我們在合法市場的市場份額而言，我們是領先品牌，並且在過去 12 個月中保持穩定的市場份額。

We have strong brand equity and provide quality and extensive products that can meet our user needs. So our second question is about our international market's competitions. So we think the competition in our industry is primarily related to product innovation rather than just pricing. Unlike other consumer categories, the growth of the e-vapor markets and market share movements among brands are driven by product innovation that could meet users' evolving demand, while complying with regulatory requirements.

我們擁有強大的品牌資產，提供優質且廣泛的產品來滿足我們的用戶需求。所以我們的第二個問題是關於我們國際市場的競爭。所以我們認為我們行業的競爭主要與產品創新有關，而不僅僅是定價。與其他消費類別不同，電子煙市場的成長和品牌之間的市場份額變動是由產品創新驅動的，產品創新可以滿足用戶不斷變化的需求，同時遵守監管要求。

For instance, the tobacco product directive in the EU region limits the capacity of cartridges to no more than two millimeter. In response to user preferences for more puffs, products like four-in-one have emerged. These products provide four cartridges and each cartridge contains no more than two milliliters of e-liquid. This can cater to user demand for convenience, while complying with EU requirements.

例如，歐盟地區的菸草產品指令將煙彈的容量限制在不超過兩毫米。為了滿足使用者對更多抽吸的喜好，四合一等產品應運而生。這些產品提供四個煙彈，每個煙彈內含的煙油不超過兩毫升。這可以滿足用戶對便利性的需求，同時符合歐盟的要求。

Also, we see more new products are offered to provide users who seek value for money options. Many brands, including us, have introduced e-liquid products, offering diversified options at various price points. Product diversification can ensure we can meet different user segments' needs without competing in pricing. Overall, succeeding in the e-vapor market requires product innovation, but not price cuts, as this would harm brand equity.

此外，我們還看到更多新產品的推出，為尋求物有所值的用戶提供了選擇。包括我們在內的許多品牌都推出了煙油產品，提供不同價位的多樣化選擇。產品多元化可以確保我們能夠滿足不同用戶群的需求，而無需進行價格競爭。整體而言，在電子煙市場取得成功需要產品創新，而不是降價，因為這會損害品牌資產。

As the market and penetration of the e-vapor category continue to grow, we believe we can grow with the industry and increase our share by launching products that cater to user needs. Thank you for your questions.

隨著電子煙類別的市場和滲透率不斷增長，我們相信我們可以與行業一起成長，並透過推出滿足用戶需求的產品來增加我們的份額。謝謝您的提問。

[Bojia Fang], CITIC Securities.

[方博嘉]，中信證券。

Thank you, management. This is Bojia Fang, CITIC Securities, and I have one question here. We have observed that UK e-cigarette exports experienced a significant decline in March. Could you please share whether this downturn is related to the recent ban on disposable products? Additionally, could you provide some insights into which major receipt markets are currently driving the sales for the company's disposable products? How has growth been in these markets and how do you view the future trends? Thank you.

謝謝你，管理階層。我是中信證券的方伯嘉，我有一個問題。我們觀察到，3月英國電子煙出口大幅下降。您能否分享一下這種低迷是否與最近一次性產品的禁令有關？此外，您能否提供一些關於目前哪些主要收據市場正在推動該公司一次性產品銷售的見解？這些市場的成長情況如何？謝謝。

Thank you very much, Bojia. The decline in the UK e-cigarette exports in March is partially attributed to the anticipated ban on disposable products, which could take effect as early as April 20, 2025, we observe trends indicating that players across the value chain are preparing for the change. For instance, some brands with a significant focus on disposables have already launched and promoted their pod system products. Some retailers are also converting existing disposable users to other subcategories such as pod system and open system products. So regarding our disposable products or WAKA, we primarily sell our disposables in markets where they are allowed.

非常感謝你，博嘉。3 月英國電子煙出口下降的部分原因是預期的一次性產品禁令，該禁令最早可能在2025 年4 月20 日生效，我們觀察到的趨勢表明，整個價值鏈的參與者正在為這一變化做好準備。例如，一些專注於一次性用品的品牌已經推出並推廣了他們的小煙系統產品。一些零售商也將現有的一次性用戶轉變為其他子類別，例如 Pod 系統和開放系統產品。因此，對於我們的一次性產品或 WAKA，我們主要在允許的市場銷售我們的一次性產品。

Disposable products have gained popularity due to its convenience and a relatively affordable pricing, and our disposable products have experienced growth as well. So regarding the future trend of disposables, each market situation is different, as it largely depends on local regulatory developments. If such disposable products are banned in certain markets, we can convert users to others subcategories, given that we are a leader in cost system while offering e-liquid solutions in certain markets as well. Thank you for your question.

一次性產品因其便利性和相對實惠的價格而受到歡迎，我們的一次性產品也經歷了成長。所以對於一次性用品的未來趨勢，每個市場情況都不同，很大程度取決於當地監管的發展。如果此類一次性產品在某些市場被禁止，我們可以將使用者轉換到其他子類別，因為我們是成本系統的領導者，同時也在某些市場提供電子液體解決方案。謝謝你的問題。

Thank you.

謝謝。

Thank you. And due to current constraints now, I would like to turn the call back over to the company for any closing comments.

謝謝。由於目前的限制，我想將電話轉回公司以徵求結案意見。

Thank you once again for joining us today. If you have further questions, please feel free to contact RLX Technology Investor Relations team through the contact information provided on our website of Piacente Financial Communications. Thank you.

再次感謝您今天加入我們。如果您還有其他疑問，請隨時透過 Piacente Financial Communications 網站上提供的聯絡方式聯絡 RLX Technology 投資者關係團隊。謝謝。

Thank you. This concludes this conference call. You may now disconnect your line. Thank you.

謝謝。本次電話會議到此結束。現在您可以斷開線路。謝謝。