2023 results fall short of our expectations
Blue Moon announced its 2023 results: revenue of HK$7.324 billion, -7.8% year over year. Excluding the impact of the devaluation of RMB against the HKD, RMB caliber revenue was -2.9%, with a steady increase in online revenue and a decrease in offline dealers and KA channel sales; net profit to mother of HK$325 million, or -46.8% YoY. The performance fell short of our expectations, mainly due to increased competition in the industry, and the company increased sales expenses. On a semi-annual basis, 1H/2H23 revenue was -22.9%/+0.7% YoY, and RMB 2H23 revenue was +4.5% YoY, mainly due to the strong performance of emerging online channels combined with a recovery in offline sales; 2H23's net profit was HK$493 million, or -35.2% YoY.
Development trends
1. Online revenue grew steadily, and the decline in revenue from KA and distribution channels narrowed in the second half of the year. ① By category, clothing cleaning and care business revenue in 2023 was -4.7%. Excluding exchange rate effects, RMB annual revenue was the same, with 2H23 revenue +7.9%; personal cleaning/household cleaning products revenue was -27.8%/-25.8%, mainly due to the decline in demand for disinfection products after the pandemic; ② By channel, online revenue was +1.3%, of which emerging channels such as Douyin, Kuaishou, and Pinduoduo grew rapidly; of these, distribution/KA channel revenue was -15.5% (2H23 year-on-year difference -2.7%/+3.3%), mainly due to dealers reducing inventory levels after the pandemic, and the company optimized KA customer structure to control accounts receivable risk.
2. The gross margin was further repaired, and the increase in sales expenses dragged down the net interest rate. The company's gross margin in 2023 was +4.2ppt to 62.0% year-on-year, mainly benefiting from lower costs of raw materials such as palm oil and LDPE. On the cost side, the sales expense ratio in 2023 was +10.9ppt to 44.3% year-on-year, mainly due to increased competition in the industry, the company increased its omni-channel marketing expenses; the management expense ratio was +1.3ppt to 15.2% year over year, mainly due to increased employee remuneration and R&D investment. In addition, benefiting from reduced foreign exchange losses and increased interest on US dollar deposits, other income and financial revenue in 2023 were HK$37 million and HK$272 million respectively, up HK$137 million and HK$93 million, respectively. Under the combined influence, the company's net profit margin in 2023 was -3.3ppt to 4.4% year-on-year.
3. Pay attention to the efficiency of expenditure investment and the progress of net interest rate restoration. ① Channel side: The company adheres to an omni-channel operation strategy. While strengthening the advantages of traditional e-commerce channels such as JD and Tmall, the online side actively lays out emerging channels such as Douyin and Kuaishou to expand sales through content marketing and talent delivery; offline companies continued to increase terminal store coverage. By the end of 2023, there were about 1,830 dealers, covering about 500,000 terminal stores, and increasing store delivery rates by rewarding dealers. ② Product side: The company continuously optimizes the product structure to promote sales of best-selling products. According to Jiuqian data, the company's sales of disinfectant and sports laundry detergent grew rapidly in 2023 through online channels such as Tmall.
Profit forecasting and valuation
We maintain our 2024/2025 earnings forecast. The current share price corresponds to 18/15 times the 2024/2025 price-earnings ratio. Maintaining an outperforming industry rating and target price of HK$2.7, corresponding to 25/21 times the 2024/2025 price-earnings ratio, with 40% upside compared to the current stock price.
risks
Industry competition intensifies; raw material prices fluctuate; poor promotion of new products; product quality problems.