Blue Moon To Face Margin Pressure Through 2022, but Medium-Term Growth Trajectory Remains Intact

Narrow-moat Blue Moon reported first-half 2022 results with a net loss slightly larger than the estimate it issued in its profit warning during July. The company reported decent progress in developing an omnichannel model by penetrating new retail channels, lower-tier cities, and expanding offline point-of-sale coverage, which we view positively as it could benefit longer-term sales growth and margins. We acknowledge the margin pressure that Blue Moon will face in the near term as it refrains from raising prices, but we believe its investment in channel diversification will support profit growth next year and beyond. We maintain our fair value estimate of HKD 7.40 per share, which implies 32 times 2023 P/E and 17 times enterprise value/EBITDA. We consider the stock undervalued and believe the company could deliver longer-term value to investors through its channel transition endeavors.