Blue Moon FY22 had revenue of HK$7.95 billion (+4.6%) and adjusted net profit of HK$770 million (-19.2%) excluding exchange effects. The impact of the epidemic increased in the second half of the year, with revenue of HK$5.06 billion (-3.4%), lower than previous expectations. Adjusted net profit of HK$770 million (-19.2%) and profit margin of 15.3% were relatively stable. The company's channel investment is also expected to drive a double-digit increase in offline sales, and the continued decline in raw material prices is expected to drive a significant improvement in gross margin. Maintain the “increase in holdings” rating.
22H2 The impact of the epidemic has increased, revenue growth has slowed, and profit performance has been steady. The company's revenue for the full year of 2022 was HK$7.95 billion (+4.6%), +7.7% year-on-year after excluding exchange rate changes; net profit of HK$6.1 billion (-39.7%), and adjusted net profit of HK$770 million after excluding exchange rate changes (-19.2%). In the second half of the year, the Q4 pandemic had a large and wide-ranging impact on offline sales and transportation. 2H22's revenue was HK$5.06 billion (-3.4%), lower than previous expectations; however, profit levels remained relatively stable, with 2H22's net profit of 760 million HK$760 million (-28.2%), profit margin 15.0% (vs. 20H2 15.6% /21H2 20.2%), adjusted profit margin of 15.3%. By product, 2H22's revenue from clothes cleaning/personal cleaning/household cleaning was HK$43.7/39/3.1 billion, respectively, -2.8%/+0.7%/-15.0% year-on-year. Under the epidemic environment, personal cleaning products grew better than Yi Qing and Jiaqing, and their share of revenue increased by 0.3 pct to 7.7%, while Yi Qing and Jiaqing contributed 86.3% and 6.0% respectively, and +0.5/-0.8 pct respectively over the previous year. In 2022, the company continued to launch new product segments, such as sports laundry detergent, underwear laundry detergent, and an upgraded hand sanitizer, foaming antibacterial hand sanitizer. Looking ahead to 2023, driven by new products and channel distribution, the company expects the product structure to improve, leading the revenue contribution of personal cleaning products to increase to about 10%, and the share of laundry detergent to drop to about 80%.
Raw material prices fell, and gross margin was better than expected. Raw material prices fell in the second half of the year, the average price of palm oil fell 23.5% from the end of June 2022 to the end of 2022, and continued to fall 6.8% since the beginning of 2023. Looking at domestic spot prices, LDPE fell 18.6% from the end of June 2022 to the end of 2022, and fell 1.7% since the beginning of 2023. 2H22's gross profit margin was 60.6%, which was basically the same as the previous year (-0.1 pct), with a year-on-year increase of 7.5 pcts. The increase was better than the company and our expectations. Raw material prices have continued to fall since 2023. The company expects raw material prices to drop by more than 20% year on year in 2023, and expects annual gross margin to rise to a level equivalent to 2020 (62% to 64%). In terms of costs, offline channel reform continued to advance. The company expanded the number of sales staff, increased the sales expenses stage, and later trained new recruits at home due to the pandemic. The sales cost rate for the second half of the year was 29.7% (+1.6 pcts). Management expenses also increased 13.3% year on year in the second half of the year, and the cost ratio increased by 1.1 pcts to 14.0% year on year. By the end of 2022, the company had 9,025 employees, +18.5% compared to the number of employees, and +9.0% of the per capita expenses. The company expects the number of sales and management personnel in 2023 to be relatively maintained compared to 2022, and there is room for optimization of cost rates.
Deploy terminal stores to help healthy offline growth. 2H22 Online/offline revenue was +5.3%/-9.5% year-on-year, respectively. Affected by the pandemic, offline distributors' revenue was basically the same year on year, while revenue from major direct sales customers declined a lot (-32.3%), contributing 42.9% (+1.4pcts) and 12.1% (-5.2 pcts) of the company's total revenue, respectively.
Online/offline revenue contributed 45.0%/55.0% respectively in the second half of the year, and the channel structure was healthy. The company's sales staff layout and investment are expected to drive online sales growth and recovery in 2023, and the company plans to increase the number of dealers from 1,500+ to 2000 in 2023. At the same time, the company will focus on deploying terminal stores this year to expand store coverage and penetration, especially community stores. The company will classify people and products, promote new categories more in community stores, and invest in expanding stores for traditional products. Online sales grew steadily in the second half of the year, +5.3% year-on-year. Brand sales remained at the top of JD and other major e-commerce platforms, and ranked first in sales volume on multiple online platforms during the “618 Shopping Festival”, and the brand strength was stable.
Risk factors: Industry competition intensifies, the company's product & channel expansion falls short of expectations, and raw material prices fluctuate.
Profit forecasting, valuation and ratings: Looking ahead to 2023, with the recovery of offline passenger flow and smooth transportation, the company's channel personnel investment will bring results. It is expected to drive double-digit growth and contributions to offline distributors.
Continued decline in raw material prices will drive a significant year-on-year improvement in gross margin, slow growth in the scale of expense-side investment, and sales leverage drive optimization of the cost ratio. Under a neutral and cautious assumption, we adjusted the 2023/2024 EPS forecast to HK$0.21/0.26 (original forecast HK$0.28/0.33), added HK$0.31 to the 2025 EPS forecast, and added HK$0.31 to the 2025 EPS forecast. The current price corresponds to the 2023-2025 PE 23/18/15x, respectively. Referring to the valuation levels of comparable companies (according to the unanimous expectations of Reuters, P&G 2024E 25x PE and Huawang 2024E 24xPE, corresponding to a high single digit profit growth rate of 10%), the company was given 25xPE in 2024, corresponding to a target price of HK$6.5, maintaining the “increase in holdings” rating.