Blue Moon’s Growth in 2023 Hinges on Channel Execution, but Lower Costs a Tailwind

Narrow-moat Blue Moon 06993 reported 2022 results that missed Refinitiv consensus and our estimates on the top line and net profit. The company attributed the profit miss to higher channel investments that did not bear fruit as well as elevated input costs. But management is optimistic about a potential sales recovery and that costs will become more favorable in 2023. We have reduced our fair value estimate to HKD 6.60 per share (from HKD 7.40 per share) due to lower 2023 top-line and profit projections, but continue to consider the stock undervalued. Our fair value estimate implies 31 times 2023 P/E and 3.8% dividend yield. We think the company can benefit from offline sales growth and lower input costs in 2023, thereby expanding its margins.

In 2022, Blue Moon recorded a 5% year-on-year increase in revenue (8% in yuan terms), with momentum slowing in the second half when online sales growth moderated. The company shifted more focus to ramping up its offline distributor channels, but expansion efforts were hindered by coronavirus control measures. Blue Moon continued to invest in emerging channels such as online-to-offline and video streaming platforms. The elevated palm oil price also weighed on the gross margin whereas higher selling expenses were required to expand the distributor and point-of-sale network. As a result, Blue Moon’s net margin fell to a multiyear low of 7.7%.