Blue Moon Earnings: Lackluster Results Suggest a Lower Medium-Term Growth Outlook

After disappointing first-half results, we cut our fair value estimate for narrow-moat Blue Moon 06993 to HKD 3.60 from HKD 6.60. We also lower our longer-term sales growth projections due to uncertainty around the growth outlook for its major product segments. The company mentioned the potential of expanding into other new personal care categories, but we remain neutral until there are more tangible signs. We now project an average annual sales growth rate of 5.8% from 2024 onward and a five-year net profit CAGR of 4.8%. The implied multiple, at 24 times 2024 price/earnings, is now closer to that of international peers, due to slower medium-term growth. We look for more consistent improvement in channel execution that flows through to the bottom line before revisiting our long-term view. We see Blue Moon shares as fairly valued.

Sales declined 23% year on year, or 16% on constant currency, with all product categories facing headwinds. Personal hygiene and home care revenue plunged, which the company attributes to a decline in demand for sanitary products in the wake of COVID-19. Management also ascribes the fall in revenue to price discounts in the key accounts channel, with the aim of a shorter receivables cycle; and inventory adjustments in the offline distributor channel. We think slowing demand is the major factor. The sales increase in the distributor channel in 2022 appears to have raised channel inventory that had to be corrected this year. Blue Moon’s trajectory in growing the distributor channel appears bumpy.

The company noted improved sales in July and for lower palm oil prices to benefit second-half margins. But we hold a cautious view about a meaningful rebound in the second half. Consumers may remain cautious, leading to a stepping down to lower-priced alternatives to Blue Moon’s products.