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Blue Moon's Growth Puzzle: Why is the net profit of laundry detergent the highest seller in 15 years?

Text | Zhang Jiaru

When it comes to laundry detergent, many people's first impression is a blue moon. According to the statistics of the China Chamber of Commerce and other statistics, Blue Moon laundry detergent has ranked first in the comprehensive market share of similar products for 15 consecutive years (2009-2023) and hand sanitizer for 12 consecutive years (2012-2023).

However, there are also difficulties in the days of the crown sales. Recently, Blue Moon released a profit forecast for the first half of 2024, and from the data point of view, Blue Moon's sales and profit data can be called "ice and fire".

Blue Moon's Growth Puzzle: Why is the net profit of laundry detergent the highest seller in 15 years?

According to the announcement, Blue Moon recorded sales growth in all product categories and all sales channels except for direct sales to large customers, with overall sales growth of no less than about 38% compared to the first half of 2023.

Looking at the profit data, in the first half of 2024, Blue Moon recorded a comprehensive loss attributable to equity holders of the company (net profit attributable to the parent company) of about HK$665 million (619 million yuan), compared with a loss of HK$167 million in the first half of 2023, the loss increased by 295%.

In the long run, since its listing in 2020, Blue Moon's revenue has increased first and then declined, and the net profit attributable to the parent company has repeatedly hit new lows. Reflected in the secondary market, the market value of Blue Moon exceeded HK$100 billion at the beginning of its listing, and at the close of trading on July 22, 2024, the company's total market value was HK$13.6 billion (12.7 billion yuan), a significant contraction.

What happened to Blue Moon?

"Brother laundry detergent" can't stop the net profit from hitting a new low

The Blue Moon brand was born in 1992, and the original product was not the laundry detergent that we are known today.

In 1992, the first "Blue Moon" brand product, Blue Moon Powerful Oil Pollution Buster, began to be sold. In 2000, Blue Moon transparent packaging Blue Moon antibacterial hand sanitizer began to be sold. In 2008, Blue Moon launched Blue Moon Deep Cleansing Care Laundry Detergent.

Blue Moon's launch of laundry detergent has a lot to do with the promotion of Zhang Lei, the founder of Hillhouse Capital. At the beginning of the 21st century, Zhang Lei returned from overseas and couldn't find laundry detergent when he visited the supermarket. So, Zhang Lei found Luo Qiuping, the owner of Blue Moon who was making hand sanitizer at the time, and the two hit it off and decided to seize the consumer awareness of the laundry detergent category in China through high investment.

In 2008, when the Beijing Olympic Games were unprecedented, Blue Moon invited Olympic champion Guo Jingjing to endorse and shout "Blue Moon, create a new era of laundry", and Blue Moon laundry detergent has become famous since then.

According to the statistics of the China Federation of Commerce, since 2009, Blue Moon laundry detergent has ranked first in the comprehensive market share of similar products and has become the "first brother of laundry detergent".

Today, Blue Moon laundry detergent products have become the main force of the company's performance.

According to Blue Moon's 2023 annual report, by product, the revenue of laundry cleaning and care products including laundry detergent was HK$6.5 billion, accounting for 88.8%, and the revenue of personal cleaning and care products and household cleaning and care products accounted for 6.1% and 5.1% respectively.

Blue Moon's Growth Puzzle: Why is the net profit of laundry detergent the highest seller in 15 years?

Judging from the performance data, although Blue Moon is the top seller of laundry detergent, it lacks stamina.

From 2020 to 2023, Blue Moon recorded revenue of HK $6.996 billion, HK $7.597 billion, HK $7.947 billion, and HK $7.324 billion, and net profit attributable to the parent company of HK $1.309 billion, HK $1.014 billion, HK $611 million, and HK $325 million respectively in the same period.

In combination, Blue Moon's annual revenue growth is relatively fluctuating, showing a trend of first increasing and then declining, and the net profit attributable to the parent company has continued to decline and continues to hit new lows.

In the first half of 2024, Blue Moon's net profit attributable to the parent company will be HK $665 million, which will also hit a new half-year low after its listing in 2020.

Where did all the money for Blue Moon go? According to the financial report, Blue Moon's marketing and promotion actions in recent years have been frequent, and sales expenses have risen sharply, eating up profit margins.

From 2020 to 2023, Blue Moon's sales expenses will be HK $2.017 billion, HK $2.392 billion, HK $2.651 billion, and HK $3.244 billion respectively, with the growth rate far exceeding the profit growth. Especially in 2023, Blue Moon's net profit attributable to the parent company will hit a new low, but the sales expenses will hit the highest level since its listing.

In the semi-annual report performance forecast, Blue Moon said that the increase in sales in the first half of 2024 was offset by an increase in sales and distribution expenses due to increased sales activity, especially due to the promotion of new products, the expansion of new e-commerce channels and the business of brand building.

The "promotion of new products" mentioned by Blue Moon mainly refers to the Supreme laundry detergent. Supreme laundry detergent is a concentrated product, focusing on the high-end market.

During the 618 Shopping Festival, the company ranked first in cumulative sales on multiple mainstream e-commerce platforms, and sold more than 10 million bottles of concentrated laundry detergent (Supreme Biotechnology laundry detergent) in a single live broadcast.

However, Blue Moon's high investment in sales, in exchange for revenue growth, has been shrinking net profit attributable to the parent company. Performance is an important factor affecting the performance of the secondary market, and the blue moon has lost the market value of 100 billion yuan in the past.

Before and after the listing, the actual controller received 4 billion dividends

On December 16, 2020, the halo of "Brother Detergent" on the head of Blue Moon successfully landed on the Hong Kong stock market, becoming the first stock of China's large daily chemical group to go to Hong Kong.

At the beginning of the listing, Blue Moon was optimistic about the market, for example, Zhongtai Securities Research Report said that there is still a large gap between China's Guoqing market and overseas mature markets in terms of per capita expenditure and product penetration. With its brand and channel advantages, Blue Moon continues to help its products sink into the lower-tier market, which opens up new growth space for the company.

According to the previous prospectus, Blue Moon's performance data continues to grow.

From 2017 to 2019, Blue Moon's revenue was HK$5.632 billion, HK$6.768 billion and HK$7.050 billion respectively, and its net profit in the same period was HK$86.16 million, HK$554 million and HK$1.079 billion respectively.

After more than ten trading days after listing, Blue Moon's share price has been rising, reaching its peak in early 2021, with a total market value of more than HK $100 billion. Since then, Blue Moon's share price has started a downward mode.

From 2021 to 2023, Blue Moon's stock price fell three times in a row, falling by 51%, 29%, and 58% respectively, with a total share price decline of 85%. At the close of trading on July 22, 2024, Blue Moon was quoted at HK$2.32, with a total market capitalization of HK$13.6 billion, a decrease of more than HK$80 billion from the post-listing high.

With the decline in market value, the wealth of Pan Dong, the actual controller of Blue Moon, has shrunk. According to the Forbes rich list, Pan Dong's fortune was $8.3 billion in 2021 and shrank to $1.3 billion in 2024. According to the Blue Moon prospectus, Luo Qiuping and Pan Dong are the founders of the company.

Blue Moon's Growth Puzzle: Why is the net profit of laundry detergent the highest seller in 15 years?

At the time of the decline in the stock price of Blue Moon, Pan Dong did not reduce his holdings and cash out a large amount, but through dividends, he has put billions into his pocket.

According to the prospectus, in June 2020, Blue Moon Group paid a dividend of HK$2.3 billion to the sole shareholder Aswann, which is 88.70% owned by ZED, and the entire share capital of ZED is held by Pan Dong. This also means that Pan Dong took away dividends of up to 2.04 billion Hong Kong dollars.

It is worth noting that from 2017 to 2019, Blue Moon's cumulative net profit attributable to the parent company in three years was only HK $1.72 billion, and a dividend cleared the net profit for three years. According to the prospectus, from 2013 to May 2020, Blue Moon has accumulated dividends of less than 400 million.

Wind data shows that after the listing, Blue Moon will pay dividends every year. According to the dividend year, from 2021 to 2024, the dividend amount will be HK $404 million, HK $809 million, HK $985 million, and HK $352 million respectively, with a cumulative dividend amount of HK $2.55 billion.

According to the 2023 annual report, Pan Dong holds 75.83% of the equity of Blue Moon, that is, since its listing, about HK $1.9 billion in dividends has entered Pan Dong's pocket. Together with the dividends received in June 2020, Pan Dong recorded about HK$4 billion.

On the whole, Blue Moon is the first brother of laundry detergent and hand sanitizer in China, driven by huge sales expenses, the overall revenue has increased, but the net profit data attributable to the parent has been eroded. Under the influence of performance, Blue Moon's stock price opened high and went low, and it no longer had a market value of 100 billion.

In the future, we will pay attention to whether Blue Moon's high sales investment can achieve re-growth in performance data and how the secondary market can perform.

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