Blue Moon Shines on Live Streaming, Consumer Product Essentials Status – Bamboo Works

China’s leading laundry detergent maker said its sales rose 38% in the first half of the year, although its net loss also widened as it spent heavily on e-commerce promotions

Key conclusions:

• Blue Moon posted double-digit sales growth in the first half of the year, even as many Chinese consumer brands saw revenues decline
• The company may be well-positioned to weather China’s economic slowdown thanks to its focus on essential consumer products, helped by the growth of e-commerce initiatives

By Doug Young

Makers of discretionary goods like luxury goods and cosmetics are singing the blues in China these days as increasingly cautious consumers rein in their spending on the kind of things that are nice to have but easy to throw away in lean times. But more basic, everyday goods like groceries and laundry soap could hold up better or even outperform the market as consumers spend more time at home to save money.

This growing chasm is breaking through announcement this week preview Blue Moon Group Holdings Ltd. is a subsidiary of Blue Moon Group Holdings Ltd. (6993.HK) first-half results. Ironically, the characterization of the announcement as a “profit warning” gives the false impression that things have not been smooth for China’s leading detergent and liquid soap maker in the six months to June.

But a closer look shows that the company’s sales have seen a big increase over the period, even as retailers in other sectors, such as cosmetics and luxury goods, have seen declines. It’s true that Blue Moon’s loss has also widened significantly over the six-month period, hence the “profit warning” flag.

But in this case, the loss is the result of heavy spending on the company’s e-commerce channels, particularly live sales, which have recently become all the rage in China. It’s also the result of heavy spending on new-generation products outside of Blue Moon’s core brand, including those aimed at a younger generation of more eco-conscious consumers.

“As e-commerce via live streaming continues to gain popularity in the first half of 2024, the group has increased its sales and distribution expenditure to focus on sales planning and marketing on online e-commerce platforms, which helps consolidate its market position on these platforms and drives long-term sales growth,” Blue Moon said.

Heavy spending on such new initiatives helped boost the company’s sales by 38% or more in the first half of the year, according to the announcement. This led to year-over-year increases in gross profits and gross profit margins, it added. However, higher selling, marketing and distribution costs undermined the company’s net result, with its net loss for the period widening to HK$665 million (US$85 million) from a loss of HK$167.5 million a year earlier.

It’s worth noting here that Blue Moon has generally been fairly profitable, although its net profit last year fell sharply to HK$325 million from HK$611 million a year earlier, partly due to foreign exchange losses. The losses in the first half of the year fit a general pattern for the company, which has typically lost money in the first half of the year but has continued to report annual profits for each year since its 2020 IPO.

Despite the profit warning, investors were clearly focused on the big sales boost, as Blue Moon shares rose 5.4% in Thursday trading, the day after the announcement. The rally brought the stock back to the level it started the year at, although it had been trading mostly lower since January.

Highly regarded

We certainly shouldn’t whitewash the company’s story too much, despite its e-commerce gains and its rising status as a stock less vulnerable to China’s economic crisis. Even after Thursday’s rally, Blue Moon shares were down more than 80% from their 2020 IPO price, reflecting a broader downtrend for Hong Kong-listed Chinese stocks during that period.

Still, the stock is currently trading at a price-to-earnings (P/E) ratio of 35, which looks pretty good for this type of consumer staples company. That ratio is more than twice the 16 for a leading beer maker Tsingdao Brewery (0168.HK) and is also ahead of global giants Procter & Gamble (PG.US) and Colgate-Palmolive (CL.US), which are trading at 28 and 32, respectively.

A deeper look at Blue Moon’s latest announcement seems to indicate that the company has only recently discovered the live-streaming phenomenon, and is also a relative newcomer to the eco-friendly concept. The company said sales from its “new e-commerce channel” were up 4.5 times in the first half of this year compared to a year earlier, and notes that it sold more than 10 million bottles of its newer Zhizun Biotech laundry detergent, a concentrated, more eco-friendly product, in a single live-streaming session.

The company makes no mention of either live streaming or “new e-commerce” in its 2023 annual report and only briefly mentions the launch of Zhizun last year, suggesting that all of these initiatives are fairly recent.

The big livestream event that boosted Zhizun’s sales apparently took place during this year’s June 18th Online Shopping Festival, which is one of two major online shopping events each year in China. Blue Moon says it “ranked first in cumulative sales across multiple major e-commerce platforms” during this year’s festival, meaning its sales are up year-on-year, though it didn’t explicitly say how this year’s results stack up to 2023.

The festival as a whole wasn’t exactly festive for e-commerce retailers in the current environment of growing consumer caution. Retail data provider Syntun said revenue from the festival fell 7% this year to 742.8 billion yuan ($103 billion) year-on-year – the first decline since it began tracking the event in 2016. The recent downward revenue correction by a cosmetics seller Yatsen (YSG.US) second-quarter revenue forecasts also suggest the company did not see a strong performance during the festival.

Broader market data from China’s National Bureau of Statistics shows that the country’s retail sales were also weak in June, rising just 2% year-on-year, the slowest growth since December 2022. Cosmetics sales fell 14.6% in the month, while gold and jewellery sales fell 3.7%, reflecting a trend we mentioned at the beginning of this review of weakening sales of non-essential goods.

While Blue Moon looks like a good defensive play in such uncertain times, it hasn’t all been rosy for the company. Its revenue fell 8% last year to HK$7.32 billion, and we’ve already mentioned that its loss has widened this year. However, analysts expect it to return to revenue growth this year, with e-commerce now accounting for more than half of the company’s revenue and growing. With these positive trends as a catalyst, combined with its defensive nature, the stock could still have some upside potential despite its high valuation.

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