1H23 performance fell short of our expectations
Blue Moon announced 1H23 results: revenue of HK$2,223 million, a year-on-year decrease of 22.9%. Excluding the impact of the depreciation of RMB against the Hong Kong dollar, 1H23's revenue in RMB fell 16.3% year on year; net loss to the mother increased to HK$167 million year-on-year, lower than our expectations. The main reason was that expenses were relatively rigid, and the company took into account the increased credit risk of some customers and accrued financial asset impairment loss provisions.
Development trends
1. KA and dealer channels are under pressure, and after excluding the impact of exchange rates, online channel revenue increased 6% year-on-year. ① By category: 1H23 clothing cleaning and care business revenue was HK$1,958 million, -20.1% year-on-year, mainly due to the company providing additional discounts to shorten the KA repayment cycle, and dealers lowered inventory levels after the pandemic; personal care/household cleaning business revenue was -47.9%/-28.2% year on year, mainly due to the decline in demand for disinfection products after the pandemic; ② By channel: 1H23 online channel revenue was HK$1,448 billion, -1.9% year on year, mainly due to the depreciation of RMB against the Hong Kong dollar, if the online channel revenue was calculated in RMB +6.4%; Dealer channels are under pressure. 1H23 revenue was HK$132/642 million respectively, or -59.5%/-40.5% year-on-year, mainly because the company provided additional discounts to KA to optimize accounts receivable balances, and dealers reduced inventory levels.
2. The decline in raw material prices drives an improvement in gross margin. Benefiting from the decline in raw material prices, 1H23 gross margin increased by 2.2ppt to 55.2% year-on-year. On the cost side, 1H23's management expenses rate was +6.9ppt to 24.3% year on year, mainly due to a decline in revenue base and an increase in administrative and R&D personnel costs; sales expenses were -7.7%, mainly due to the depreciation of RMB against the Hong Kong dollar (financial reporting currency), and the sales expense rate was +7.9ppt to 47.6% year on year. Furthermore, 1H23's other comprehensive income was HK$113 million, compared to other comprehensive losses of HK$114 million in 1H22, mainly due to a decrease in foreign exchange losses. Considering the increased credit risk of some customers, the company provided HK$72 million for impairment losses on financial assets. Under the combined influence, 1H23 had a net loss of HK$167 million.
3. Follow the progress of new product promotion and channel optimization. ① Product side: The company continues to enrich the product matrix around the trend of functionality and segmentation, actively promotes new products such as laundry detergent for underwear and sports laundry detergent, and actively expands the categories of personal care and household cleaning. ② Channel side: In terms of online channels, the company optimized its marketing strategy and product portfolio. During the “618” period in 2023, the company ranked first in the clothing cleaning category in JD and Douyin platforms; in terms of offline channels, the company continued to expand the sinking market through dealers and increase sales staff to promote terminal sales; on the KA channel side, the company focused on reducing the level of accounts receivable and driving sales by promoting high-margin new products and best-selling products.
Profit forecasting and valuation
Given the pressure on KA and distribution channels, and the company's financial asset impairment loss provisions, we lowered our 2023 and 2024 EPS forecasts by 9% and 7% to HK$0.16 and HK$0.18. The current stock price corresponds to a price-earnings ratio of 24 times/20 times the price-earnings ratio for 2023/2024. We maintained our outperforming industry rating, but due to profit forecast adjustments, we lowered our target price by 9% to HK$5, corresponding to 32 times/27 times the 2023/2024 price-earnings ratio, with 34% upside from the current stock price.
risks
Industry competition intensifies; raw material prices fluctuate; poor promotion of new products; product quality problems.