Blue Moon will list on December 16, with IPO priced at HK $13.16 per share and raising a net HK $9.58 billion through IPO, corresponding to a market capitalization of about HK $75.6 billion, valuing it at 70 times static price-to-earnings (PE-LYR) and a rolling price-to-earnings ratio (PE-TTM) of more than 55 times, or nearly 60 times.

This price is reminiscent of what other companies fall in the 50m / 70x PE "cognitive zone". There are A-share gem and Science and Technology Innovation Board enterprises with dreams of tenfold shares, as well as star leaders from various industries and markets, such as focus Media and Lixun Precision, 58 times Oriental Wealth, 65 times Tsing Tao Beer, about 54 times PE (TTM) focus Media and Lixun Precision.

In the Hong Kong stock market, there are 59 times PE's ANTA Sports Products and 55 times Country Garden Services Holdings's; in US stocks, there are 55 times PE's TIFFANY, 57 times PE's metal packaging giant BALL, and even MICROCHIP TECHNOLOGY, the world's leading semiconductor supplier with a price-to-earnings ratio of 60 times.

Such a list, of course, does not have a rigorous reference significance, but only out of intuitive curiosity. Interestingly, people with different views will draw the opposite conclusion: the bulls will think that the existence of these examples justifies the pricing of Blue Moon IPO.

Pessimists will see that most of these companies are better than Blue Moon in terms of revenue size and profitability, and their track average valuations are generally higher than Blue Moon's "household goods" industry; not to mention, in the Hong Kong stock market, there are BABA and XIAOMI with price-to-earnings ratios of only about 35 or 45 times.

Is China's "first share of detergent" worth 60 times PE? Before making a judgment, investors need to know some basic things:

• （1）Blue Moon has performed very well in its financial results over the past three years. Revenue in the first half of 2020 was HK $2.436 billion, while net profit increased by 38.5% to HK $302 million over the same period last year. However, the improvement of some of its financial indicators does not come entirely from the improvement of the level of management.

• （2）There is a tendency for funds to be concentrated to the leaders of the industry segments in the market, which may result in a premium for the result of Blue Moon valuation.

• （3）Procter & Gamble Co and Unilever, the tycoons often used to tell stories, trade on price-to-earnings multiples of 25 and 10, respectively.

• （4）Blue Moon has abandoned the laundry condensed bead product line, which has seen a surge in sales since 2020. At the commercial level, the competition between the market share of clothing cleaning and the replacement of products is full of uncertainty.

Is Blue Moon a growth stock?

Assuming that the blue moon is not expensive, the most reasonable explanation should be: it is a growth stock.

A series of venture capital stories, nearly 40% high ROE (return on equity) level, amazing net profit growth, 70 times static PE high valuation pricing. A series of representations seem to point to the market expectation that Blue Moon is still a fast-growing company after years of development.

If you go back to 2008 and 2011, investors can easily agree with this conclusion. From 2013 to 2014, the blue moon detergent market share peaked at nearly 35%; since then, its site has been eroded by many challengers, and its market share has fallen, hovering around 25%.

Recently, the story of "Gao Huan's eyes know the Moon" has been widely spread in the media, and the chapter is full of "sense of growth", but it is after all a story of the past.

Investors need to carefully distinguish whether Blue Moon's "growth stock characteristics" are conclusive.

Looking at the profit margin, the gross profit margin of Blue Moon sales in the first half of 2020, 2019 and 2018 is exciting, which is 63.99%, 64.16% and 57.42% respectively, and the corresponding net profit margin is 12.39%, 15.29% and 8.18% respectively. But if you go back to 2017, you will see that the net profit rate of its sales that year was only 1.53%.

Where does the increase in net profit margin come from?

Blue Moon has said frankly in its prospectus that it mainly comes from the fall in the price of raw materials.Palm oil and low density polyethylene (LDPE) are the main raw materials for Blue Moon, the former for products and the latter for packaging, accounting for nearly 80 per cent of the total cost. From January 2017 to January to April 2020, the average market price of palm oil dropped from about 5800 yuan / ton to about 4800 yuan / ton, and the average market price of low density polyethylene dropped from nearly 10000 yuan / ton to about 7000 yuan / ton. At the beginning of the year, the COVID-19 epidemic curbed the imminent rise in palm oil prices.

According to Frost Sullivan, a consultancy, the prices of these two types of raw materials will rise steadily in the next few years, meaning that Blue Moon's profit margins are likely to decline and return to the normal two years ago.

Looking at profit growth, Blue Moon's net profit has grown at an annualised compound rate of 254% over the past three years. This remarkable figure is based on a very low base. In 2017, Blue Moon's net profit was just HK $86.16 million. At the same time, its revenue has grown at an annualised compound rate of 11.9% over the past three years, which is not symmetrical with the increase in profits.

Looking at income growth, according to the Frost Sullivan report, the market size of the home cleaning care industry grew by 5.2% year-on-year in 2019. In the same period, Blue Moon's revenue grew 4.17% year-on-year, about 1% lower than the industry level, reflected in the change in market share, naturally reflected in the further narrowing of the leading edge.

More significantly, according to the financial report, Blue Moon had accounts receivable of 1.14 billion in 2018 and HK $1.75 billion in 2019, up 54% from a year earlier, an increase of 13 times its operating income over the same period. This means that the gold content of Blue Moon revenue data may be declining.In 2019, the company accounted for 24.4% of the overall market share of China's detergent division, just 0.9% ahead of the second place.

Looking at return on equity, ROE levels in the household goods industry rarely exceed 20 per cent, with most companies between 5 per cent and 15 per cent. Blue Moon's ROE reached 37.71% in 2019 and 29.82% in 2018, according to WIND. But if you go back to 2017, you'll find that its ROE is only 6.7%, which is the norm in the industry. The sharp rise in ROE is related to the aforementioned increase in net profit due to lower costs.

In addition, from 2017 to 2019, Blue Moon's "other income" project income was 23.09 million Hong Kong dollars, 37.45 million Hong Kong dollars and 51.52 million Hong Kong dollars respectively, of which the "government subsidy" income was 7.6 million Hong Kong dollars, 36 million Hong Kong dollars and 41 million Hong Kong dollars respectively, which increased significantly in the next two years.

Meanwhile, Blue Moon slashed "employee benefit spending" in 2019, from HK $1.313 billion in 2018 to HK $1.062 billion, a reduction of HK $251 million.Judging from the information disclosed so far, Blue Moon's high ROE level is likely to be unsustainable.As of the first half of 2020, Blue Moon's ROE was 9.81%.

Don't get me wrong. Blue Moon is still the leading provider of household cleaning solutions in China. The only question is how investors should set expectations for the company.

Frost Sullivan's report points out that China's home cleaning care industry is still in the path of structural change. In the detergent market, the penetration rate of detergent products is much lower than that of the United States, Europe and Japan, and Blue Moon, as an industry leader, will continue to benefit from this structural trend. Frost Sullivan predicts that China's detergent market penetration will reach 58.6% by 2024, and the total value of retail detergent sales is expected to grow at a compound annual growth rate of 13.6% from 2019.

Therefore, the blue moon's future main income is likely to grow at a moderate rate. The obvious advantage is that this growth process can continue for many years.

According to a simple estimate based on the industry growth rate of the company's main products, Blue Moon's net profit from 2020 to 2022 was HK $13.03,14.87 and HK $1.714 billion, respectively, up 20.7%, 14.1% and 15.3% from a year earlier. This is not the typical level of a growth stock.

For example, among the star companies in the household goods industry in the A-share market in 2020, Shunjie rou has a year-on-year growth rate of 53.42%, 48.36%, 16.60% and 34.04% respectively in the third quarter of 2020, 2019, 2018 and 2017. Zhongshun Jierou's current TTM is only about 32 times earnings.

To sum upBlue Moon is a value stock company with leading scale, mature products, leading competition and steady development from traditional industries, with moderate (rather than explosive) growth.When investors buy such stocks, what they need is a better price.

The Chinese version of Barron Weekly believes that Blue Moon IPO is nearing the end of the period of rapid growth. At today's valuation levels, the room left for the secondary market for this adult cash cow may be less than satisfactory.

The most expensive household cleaning company in the world

Blue Moon may be the only "second" household cleaning company with high price-to-earnings ratio in the world. There is an Indian listed company named Dabul (Dabur India Ltd), the main business includes laundry detergent, soap and so on. Dabul Group competes with international brands in its home market and has maintained rapid growth since 2015.

According to MSN Finance, the company's total revenue in 2019 was 87.036 billion Indian rupees, or about 7.722 billion yuan, compared with an average ROE of 29% over the past three years. Its current price-to-earnings ratio (TTM) is about 60.5 times, slightly higher than Blue Moon.

But unlike Blue Moon, Dabul also deals in skin care products, toothpaste, shampoo, health products, food and other businesses in addition to household and personal cleaning products. Its international business unit has operations in the Middle East, Africa, South Asia, Europe, America and other countries, which is worthy of the name "Procter & Gamble Co of India." Dabul's gross margin is not as good as blue moon, at about 50 per cent, but its net profit margin is higher than blue moon, reaching 17.3 per cent in the past 12 months.

In Asia, the Korean company in the same industry is LG LG Health, whose profit margin is similar to that of Blue Moon, with a gross profit margin of about 60% and a net profit margin of about 11%. But the current price-to-earnings ratio (TTM) is less than 35. LG Life Health also produces more than just washing and cleaning products. It also has a beautiful division that makes cosmetics and health foods, and a refreshing division that makes water, fruit juices and carbonated drinks. Japan's Huawang Group currently trades at a price-to-earnings ratio of about 28 times earnings. In addition to household and personal cleaning care products, Huawang Group also operates a wide range of beauty and health care products.

In Europe, the well-known household goods companies that provide washing products are Reckitt Benckiser Group and Henkel in Germany. Henkel's latest TTM is about 11 times; Reckitt, which suffered a loss in 2019, is now trading at a negative price-to-earnings ratio, with a peak of 33 times TTM in the past five years.

Procter & Gamble Co, who is the most talked about, sells home care and beauty products in more than 180 countries around the world, including Tide, Piaorou, Safeguard, Magnolia Oil, Pampers, Gillette and other brands. The current price-to-earnings ratio (TTM) is about 25.

In the A-share market, the "household goods" industry closest to the Blue Moon IPO offering price valuation is the first "sanitary napkin" Baiya share, which produces sanitary napkins, baby diapers and adult incontinence products. The current price-to-earnings ratio (TTM) is about 61 times earnings and the share price is about 24 yuan, but this price is the result of the company's rise since its listing in September. Its IPO price is only 6.61 yuan.

Back in the Hong Kong stock market, the only consumer stock comparable in product attribute and industry status is Vader International. Vinda International is one of the most popular makers of toilet paper products in China, with a price-to-earnings ratio of about 15 times TTM.

There is a view that the scarcity of similar consumer stocks will make Blue Moon more sought after, but this logic does not work for Vader International. In 2019 and 2020, Vinda International's profits increased by 107.52% and 75.31% respectively compared with the same period last year.

All in all, Blue Moon is more expensive than most household cleaning companies around the world (including integrated business giants and subdivided track stars), and that's what happened as soon as it went public.

Nice, who is 0.9% behind, is more like China's Procter & Gamble Co.

Compared with peer companies, examining the level of valuation is just one of them. Another point is that Blue Moon's laundry detergent accounts for more than 87% of its revenue, and calling it "China PlayG" is a too extensive metaphor.

In Blue Moon's brand communication so far, the most emphasized are "detergent first" and "hand sanitizer first".If you enlarge the focal length of the field of vision and expand it to the entire Chinese washing market, you will see that the competition pattern of these two subcategories does not fully reflect the whole picture of the industry.

According to data from Euromonitor International, the market share of China's washing market was stable from 2015 to 2019; during the past five years, the order of the top five remained unchanged. The top four are Libai Group, Nice, Unilever China and Procter & Gamble Co China. Although Blue Moon's market share has increased from 7.6% to 8.9%, it is only the fifth place in the entire washing industry.

In the clothing cleaning care market, Blue Moon ranked fourth with a market share of 10.4% in 2019, while the market share of the top three in the industry was 25.4%, 11.6% and 11.0%, respectively, according to the Frost Sullivan report.

In the more subdivided detergent, hand sanitizer and concentrated detergent track, Blue Moon's share lead over the second place is 0.9%, 0.4% and 1.1%, respectively.

The competitive situation of the above three market levels means that if you hold a more neutral expectation, the Blue Moon is likely to take the runner-up position in the clothing cleaning care market, but there is a big gap between the Blue Moon and the first place; in the detergent and hand sanitizer market, Blue Moon is equally likely to be overtaken by the second place behind only by a narrow margin. In the larger category of China's washing market, because the product line is more focused, or single, Blue Moon challenges the top four is relatively difficult.

If you look at the larger market for home cleaning care products, Blue Moon is certainly not "China's Procter & Gamble Co." According to Frost Sullivan's report, 64.6% of China's household cleaning care market was occupied by the top three companies in 2019, while Blue Moon ranked fifth, but only 1.7% of the market.

The Chinese version of Barron Weekly believes that investors should not one-sidedly consider the competitive pattern of a single subdivision when measuring the investment value of washing and cleaning products companies.For the same kind of consumer demand, such as "laundry", if there are three to five excellent enterprises with similar strength in the market, offering products with different forms but basically homogeneous effects, then, these subcategories compete directly with each other, and the outcome of the competition will be highly uncertain.

So who is the second place behind only 0.9% and 23.5% of the market share in Blue Moon's main battlefield of laundry detergent? According to the report of foresight Industrial Research Institute and Frost Sullivan, the "runner-up" is Nice, the second leading enterprise in China's washing market.

Nice currently owns Diaopai, Super Power, Nice, 100 years Runfa and other well-known brands, the product line extends beyond cleaning care, the sales range is involved in Europe, Africa, Oceania, Southeast Asia and the United States. In 2020, Nice completed the construction of an independent operation factory overseas, which is the first Chinese daily chemical enterprise. In November, Nice announced a trillion-level industrial plan in Hangzhou, whose strategic focus is to transform from manufacturing to comprehensive diversification, showing the intention of reconstructing the industrial chain and becoming a platform enterprise.

Libai Group ranks third in the detergent market and accounts for 12.3%. According to AC Nielsen, Libai Group currently ranks first in the Chinese laundry detergent market, with a share of 25 per cent. And Blue Moon does not produce laundry detergent.

If "China's Procter & Gamble Co or Unilever" must be elected, there is no doubt that Libai and Nice should stand side by side.

But as the industry knows, neither of these two leaders is a listed company. After Blue Moon launched IPO, Chaoyun Group, a subsidiary of Libai, also applied for IPO in Hong Kong, which specializes in insecticidal and mosquito repellent products, as well as personal care and pet care products. According to a number of media reports, Libai's Gaozi, Osia and other subsidiaries also have plans for IPO in the future.

Given the relative scarcity of Blue Moon in the capital markets, it is indeed possible to get a higher price because of the favor of capital.

Iterative route: laundry condensate vs high-end detergent

On the product iteration route related to future growth, Blue Moon firmly chooses concentrated detergent, which is tit-for-tat with another form-laundry beads.

According to a research report by Kantar, China's daily chemical market as a whole has grown slightly this year compared with last year. Unlike the sharp increase in disinfection and sterilization products caused by the epidemic, the performance of laundry products is generally stable and the price growth slows down. Among them, laundry detergent and laundry soap remained stable, while the average price of detergent products decreased. Among them, in the detergent product segment, in the first half of this year, only the price of mass-class products increased compared with the same period last year, while the price of high-end detergent did not show an increasing trend.As the consumer concept matures, the high-end detergent shows signs of slowing down.

At the same time, 2020 is the year of a surge in laundry beads sales in the Chinese market.

Observing the global market, laundry beads, as a new generation of detergent after detergent, was born in 2005 and has been popular overseas since 2011.

Technically, laundry beads can be regarded as a "detergent wrapped in water-soluble film". In terms of formula, the content of effective cleaning ingredients of laundry beads is about 60%, and the content of effective cleaning ingredients of detergent is about 15%. The traditional detergent formula contains a lot of water, and the bead coagulation technology can solve the problem of water solubility and cleaning effect, and achieve a complete iteration in the product shape.

Compared with laundry detergent, condensed beads have the advantages of portability, environmental protection and versatility. The latest "multi-cavity condensed beads" can be loaded with different functional ingredients in different cavities, such as compliance, fragrance, antistatic, anti-mildew and so on. Especially in the United States and Europe, where laundry is the main use scene, condensed beads are very popular because of their convenient properties.

In about 2014, laundry condensed beads first entered the Chinese market, and few people asked for information at the initial stage. In the past three years, a number of well-known daily chemical brands in China have launched condensed bead products one after another, but the growth rate is still slow due to high unit prices; after COVID-19 's epidemic, it suddenly became an online celebrity commodity.

Kadu's report points out thatIn the first half of 2020, laundry condensed beads achieved a 92% increase in sales compared with the same period last year.Contrary to the trend of high-end detergent and the growth of mass products, laundry beads "overcome" the disadvantage of higher prices and successfully attracted young consumers and families with high purchasing power and trend sensitivity. Supported by the promotion efforts of online channels such as e-commerce and live streaming.A small number of users have upgraded their consumption by leaps and bounds, moving from detergent to trying to wash clothes and coagulate beads.。

Not only that, Kaidu's report also points out that the demand for refined laundry is also reflected in the extension of softeners. There was a massive loss of consumers of liquid softeners during the outbreak, but sales of its high-end substitute Liuxiangzhu increased by 53% in the first half of the year compared with the same period last year.

Data from Euromonitor International show and predict that the compound annual growth rate of China's laundry bead market will exceed 16% from 2017 to 2022.

Accordingly, Blue Moon's prospectus quoted Frost Sullivan as saying that retail sales of concentrated detergents are expected to grow at a compound annual growth rate of 19.7% from 2019. In particular, by 2024, the permeability of concentrated detergent in China is expected to reach about 58.6%, while the permeability in the United States and Japan is estimated to be about 96.3% and 86.5%, respectively.

According to the Chinese version of Barron Weekly, whether it is Euromonitor or Frost Sullivan's forecast, the iterative growth space of laundry products it refers to will actually be shared by concentrated detergent and laundry beads. Both of them are mainly aimed at high-income families, and it is virtually impossible to predict the two separately in real competition.

With regard to China's clothing cleaning market, it is necessary for investors to understand the following outstanding competitive factors:

First, is the difference in the permeability of washing liquid in the Chinese market equal to the growth space of this kind of products?

Penetration refers to the percentage of the sales value of detergent as a percentage of the total sales value of all detergent products; in 2019, the penetration rate of Chinese detergent was 44%, that of Japan was 79.5%, and that of the United States was 91.4%. Some previous analysis articles believe that the trend of upgrading consumption from detergent to liquid detergent is certain, and the gap in the permeability of detergent between China and the United States and Japan is all default to the growth space of this kind of products, that is, there will be a large number of consumers switching from detergent to liquid detergent.

But in fact, for a large number of low-and middle-income families in China's low-tier cities, there is no need to abandon laundry detergent until they get rid of price sensitivity.If we look at the changes in the scale of the clothing cleaning market since 2015, we will find that the sales of washing powder in the Chinese market have not changed much on the whole, and are basically stable between 290 and 30 billion yuan.In other words, the growth of China's laundry detergent market is likely to come from the overall growth of laundry demand, rather than driven by the replacement and upgrading of laundry powder.

It has been 12 years since Blue Moon launched laundry detergent in 2008; the market size of this category has grown by about 20-3 billion yuan a year since 2015; market growth is now expected to stagnate in 2020, the same as in 2019. So, is it a natural trend for laundry products to become high-end? Does the current permeability gap indicate a broad space, or does it mean a bottleneck for the minds of consumers?

Second, will price-insensitive consumers choose concentrated laundry detergent or laundry beads?

As mentioned earlier, from a technical point of view, laundry condensed beads are half a step ahead; from a marketing point of view, condensed beads have a natural appearance advantage and are more likely to win the favor of young people. In terms of shape, laundry beads and bottled concentrated detergents are not the same generation at all.

Third, to sum up, China's clothing cleaning market shows a trend of product diversification and demand differentiation. In terms of laundry detergent and detergent, each has a relatively stable consumer group, and the scale is in a trend of steady growth at low and medium speed respectively, while in terms of concentrated detergent and laundry beads, the outcome is still uncertain. therefore,Head enterprises generally adopt a sound strategy, covering all product lines from low-end to high-end.

The problem with Blue Moon is:

(1) give up the product line of washing and condensing beads actively and completely.

Among the mainstream domestic companies, Blue Moon is the only one that does not do laundry beads. According to the proportion data of the laundry condensed bead brand from Tmall, the current online channel leaders of this category include: Unilever's Momo and Libai, the elite and mother's first selection of Willis Group, and Procter & Gamble Co's Tide.

(2) these well-known enterprises with the layout of laundry beads produce concentrated detergent at the same time.

They have the opportunity to serve consumers of both preferences at the same time, and gradually observe the changes in the market, before the market finally comes out of the winner, timely adjust the focus of production and marketing, in order to remain invincible. In 2019, Blue Moon ranks first in the concentrated detergent market, leading the second place by 1.1%, and has not yet established an absolute advantage.

The Chinese version of Barron Weekly has written to Blue Moon on the main issues involved in this article, and the company has replied that it is inconvenient to respond.

According to the company's prospectus, about 2 per cent of the money raised by Blue Moon's IPO is expected to be used to enhance research and development capabilities and will continue to upgrade the formulation and packaging of existing products. At the same time, about 52.4% is expected to be invested in marketing expenses.Including through celebrity endorsement, program sponsorship, online live broadcast, media advertising, marketing activities and other ways to improve brand awareness, strengthen product penetration and consolidate the sales and distribution network.

From the direction of the use of funds, we can speculate the future strength of the company: blue Moon has the intention to launch a new round of channel campaign, offline channels, intensive farming to low-line cities.

It is reported that Blue Moon added 247 dealers in the first half of 2020, bringing the number of offline dealers to the highest level since 2017. In the online channels where the company has advantages, live e-commerce, community e-commerce, community e-commerce are the new focus. In terms of product research and development, the company does not have the clue of greater change and innovation, Blue Moon itself is satisfied with and determined to the current product line planning.

The Chinese version of Barron Weekly believes that Blue Moon has long-term stable profitability and excellent free cash flow, and investors need to see whether its profit margin can be maintained and how its ROE level, which is significantly higher than that of its peers, will change in the future. So far, there is no sufficient and reasonable argument for Blue Moon to have valuations that are significantly higher than those of good comparable companies.

In China's household cleaning products market, especially the main laundry detergent business, Blue Moon will have a long-term and fierce competition with powerful enterprises such as Libai, Nice, Procter & Gamble Co, Unilever and so on. Among them, the dispute between the high-end product route of concentrated detergent and laundry beads may affect the market pattern of the industry in the future. Therefore, under the high price-to-earnings ratio, investors need to deeply consider the rationality of the high growth expectations behind the Blue Moon IPO offering price.

According to WIND data, the current domestic securities companies give Blue Moon earnings per share (EPS) consensus forecast, 2020, 2021, 2022 respectively 0.23,0.26,0.30, based on its IPO issue price, the corresponding price-to-earnings ratio is 57.21,50.62,43.87 times.