Blue Moon Group Holdings Limited (“Blue Moon”) (HKG:6993) is a leading consumer-centric household care company in China. The company develops, manufactures and markets a wide selection of products under three categories: fabric, personal hygiene and home care.  

Shares of the Chinese company rose nearly 13.1% on its trading debut on the Hong Kong stock exchange on 16 December 2020 marking another successful initial public offering (IPO).  If you are looking at Blue Moon with interest, here are 10 things to know before you invest.  

1. History of the company

The “Blue Moon (蓝月亮)” brand was founded by the company’s chief executive officer, Mr. Luo Qiuping (罗秋平), 28 years ago. Since then, the company has developed into one of the fastest-growing companies in China’s household care industry. 

According to Frost & Sullivan, the retail sales value of China’s household care industry increased at a compounded annual growth rate (CAGR) of 4.9% from 2017 to 2019. Over the same period, Blue Moon’s revenue increased at a CAGR of 11.9%. In 2019, the company’s revenue was HK$7.0 billion and net profit was HK$1.1 billion.  

In addition, from 2017 to 2019, the company’s flagship “Blue Moon (蓝月亮)” brand ranked first in the liquid laundry detergent market and the liquid soap market, each in terms of market size by retail sales value in China.  “Blue Moon (蓝月亮)” also ranked fourth in both the fabric care market and the personal hygiene market and ranked fifth in the home care market, all in terms of retail sales value in China. 

2. Product portfolio overview

Blue Moon delivers products for a multitude of cleaning scenarios, including fabric care, personal hygiene, and home care. The company’s products are sold in all provinces in China through its omnichannel distribution network. The following illustration demonstrates the coverage of Blue Moon’s product portfolio:

(Source: IPO prospectus)

Fabric care products are the largest product category for the company and contributed HK$6.2 billion or 87.6% of total revenue in 2019. Meanwhile, personal hygiene products and home care products contributed HK$418.5 million or 5.9% and HK$453.7 million or 6.5% of total revenue in 2019 respectively.   

(Source: IPO prospectus)

3.  China’s fabric care and liquid laundry detergent market 

We will focus on China’s fabric care and liquid laundry detergent market since that is Blue Moon’s largest product category. Both industry and consumer trends point to continued growth for Blue Moon. 

According to Frost & Sullivan, the market size of China’s fabric care market by retail sales value increased from RMB56.3 billion in 2015 to RMB67.8 billion in 2019, representing a CAGR of 4.8% from 2015, and is expected to continue to grow at a CAGR of 7.4% from 2019 to reach RMB97.1 billion in 2024. The following chart set forth the breakdown of the retail sales value of the fabric care market by product from 2015 to 2024. 

(Source: IPO prospectus)

According to Frost & Sullivan, consumers in China have gradually shifted from relying on powder laundry detergents to increasingly preferring liquid laundry detergents due to the enhanced convenience. In fact, the penetration rate of liquid laundry detergents, representing the retail sales value of liquid laundry detergents as a percentage of the total retail sales value of laundry detergents, was 44.0% in China as of 2019, which was significantly lower than that of other major economies such as Japan (79.5%) and the U.S. (91.4%), indicating that there would be headroom for the further substitution of powder laundry detergents by liquid laundry detergents in China’s laundry detergent market. 

The following charts set forth the breakdown of retail sales value of liquid laundry detergents from 2015 to 2024 and the penetration rate of liquid laundry detergents in China, the U.S. and Japan in 2019. 

(Source: IPO prospectus)

4.  Undisputed leader in China’s liquid laundry detergent market 

The top five liquid laundry detergent companies accounted for 81.4% of the market share by retail sales value in the liquid laundry detergent segment in China. Blue Moon had the largest market share in China’s liquid laundry detergent market for 11 consecutive years from 2009 to 2019. Its retail sales value represents 24.4% of the overall market share of the liquid laundry detergents segment in China in 2019. 

(Source: IPO prospectus)

5. Production bases

Blue Moon has four production bases located in Guangzhou, Tianjin, Kunshan and Chongqing. The following map illustrates the geographic coverage of its production bases.  

(Source: IPO prospectus)

The company’s production capacity has generally been increasing from 2017 to the six months ended 30 June 2020. The significant increase in production and utilization rate of personal hygiene products in the six months ended 30 June 2020 was because of the Covid-19 outbreak and the resultant increase in demand for personal hygiene products. 

(Source: IPO prospectus)

6. Sales and distribution channels

Blue Moon operates an omnichannel sales and distribution network across China that caters to the purchase preferences of a broad consumer base.

The company’s offline sales and distribution network include direct sales to key account clients such as hypermarkets and supermarkets as well as offline distributors which resell its products to hypermarkets, supermarkets, convenience store, local grocery stores, gas stations and certain small vendors in the residential communities.  

Separately, Blue Moon is an early mover and leader in China’s household care industry to utilize e-commerce. Having partnered with major e-commerce platforms in China for approximately ten years, the company is a key business partner of major e-commerce platforms in China. In 2019, its brand ranked first in terms of transaction value during the 618 Shopping Festival and Singles’ Day events on JD.com and Tmall, respectively. 

The table below sets forth a breakdown of revenue contribution by sales and distribution channels from 2017 to the six months ended 30 June 2020. 

 (Source: IPO prospectus)

7. How the IPO proceeds are used

Blue Moon intends to use the net proceeds raised of approximately HK$8.5 billion for the following purpose:

  • Finance business expansion including production capacity and purchase of equipment and machinery to facilitate such expansion plan as well as the development of laundry services (HK$3.0 billion or 35.6% of net proceeds);
  • Raise brand awareness, further strengthen its sales and distribution network and increase product penetration (HK$4.5 billion of 52.4% of net proceeds); and
  • General corporate and working capital purposes (HK$849.0 million or 10.0% of net proceeds).

8. Substantial shareholders and key management

Blue Moon’s largest shareholder after the IPO is Ms. Pan Dong (潘东), spouse of Mr. Luo Qiuping, with an equity stake of 77.4%. Meanwhile, a private equity firm, Hillhouse Capital will hold an equity stake of 9.3%.  

Ms. Pan Dong, aged 44, was appointed a director and chairman of the company on 27 December 2007. She was re-designated as an executive director on 22 June 2020 and is primarily responsible for the technological development of Blue Moon. Before joining the company in 1997, Ms. Pan worked as a teacher at the Institute of Organic Chemistry of School of Chemistry at the South China Normal University from July 1987 to July 1997.

Ms. Pan graduated from Wuhan University in China with a bachelor’s degree in organic chemistry in July 1984 and a master’s degree in organic chemistry in July 1987. She received a master of business administration degree with distinction from Lawrence Technological University in the United States in December 2001.   

Meanwhile, Mr. Luo Qiuping, aged 57, was appointed a director and the chief executive officer of the company on 12 February 2008. He was re-designated as an executive director on 22 June 2020. He is primarily responsible for the strategic planning and overall management of the Blue Moon. Mr. Luo has more than 30 years of experience in the household care industry. 

Mr. Luo graduated from Wuhan University with a bachelor’s degree in organic chemistry in July 1984. He received a master’s degree in organic chemistry from the Chinese Academy of Sciences in June 1987. Mr. Luo was certified as a chemical engineer in January 1993 by the Guangzhou Municipal Science & Technology Commission of the PRC. 

9.  Financial Highlights 

Years ended December 31,Six months ended June 30,
20172018201920192020
HK$’000HK$’000HK$’000HK$’000HK$’000
Revenue 5,632,0336,767,9457,049,9052,720,3502,435,868
Gross profit 2,995,1233,886,3014,523,0101,671,7151.558.603
Profit after income tax 86,159553,9851,079,617217,956302,193
Gross profit margin (%)53.257.464.261.564.0
Net profit margin (%)1.58.215.38.012.4
Return on assets (%)6.734.345.7N/AN/A
Return on equity (%)2.112.823.1N/AN/A
As of 31 DecemberAs at 30 June
20172018201920192020
Gearing ratio (%)77.649.916.6N/A6.7
Current ratio0.91.21.8N/A2.3
Quick ratio0.70.91.6N/A1.9

(Source: IPO prospectus)

Blue Moon has demonstrated stable and improving financials.

  • While revenue has increased steadily from HK$5.6 billion in 2017 to HK$7.0 billion in 2019, revenue for the six months ended 30 June 2020 declined versus the comparative period for the six months ended 30 June 2019 as the Covid-19 outbreak weakened consumers’ demand for fabric care products, which was partially offset by an increase in the demand for disinfectant products. 
  • Gross profit margins have increased from 53.2% in 2017 to 64.2% in 2019. The increase in gross profit margins was primarily driven by the decreasing price trend of raw materials as well as other factors such as improved inventory management and production efficiency. Similarly, its net profit margins have improved from 1.5% in 2017 to 15.3% in 2019 owing to a general decrease in selling and distribution expenses from the streamlining of the offline sales force and improved inventory and procurement management.
  • The company should not have any liquidity issues since its gearing ratio has been reduced significantly from 77.6% in 2017 to 6.7% as of 30 June 2020. Its current and cash ratios are also at healthy levels of 2.3x and 1.9x as of 30 June 2020. 
  • Blue Moon’s return on equity of 42.7% and return on assets of 23.1% achieved in 2019 are commendable and demonstrate excellent capital allocation by management. Management has indicated that the company intends to distribute to shareholders no less than 30% of its net profits for the first financial year after the IPO.

10. Current valuation looks expensive   

With a closing share price of HK$15.26 as at 31 December 2020, Blue Moon is trading at a price to earnings (PE) ratio of 75.4, with a market capitalization close to HK$87.7 billion. The company is a stable and mature business and is more suited to conservative investors, but share prices are overly stretched at current valuation. Therefore, it would be best to patiently wait for a better opportunity before considering an investment. 

(Source: Google Finance)

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