Shulou(Shulou.com)06/01 Report--

Recently, "laundry liquid" Blue Moon submitted a prospectus to the Hong Kong Stock Exchange for listing on the main board of Hong Kong stocks, with co-sponsors Merrill Lynch, CICC and Citigroup.

It is reported that the IPO, Blue Moon wants to raise funds for capacity expansion, enhance brand awareness, enhance sales and distribution network, but for the specific scale of fund-raising, Blue Moon did not disclose in the prospectus.

There are media reports that Blue Moon will raise about $1 billion, which is much more than the $400m previously claimed.

According to the prospectus, by the end of 2019, Blue Moon had the largest market share in terms of retail sales in the detergent market, concentrated detergent market and hand sanitizer market, with 24.4%, 27.9% and 17.4% respectively. It is firmly in the top position in the field of cleaning and care.

The Blue Moon, which has been established for 28 years, is almost accompanied by the development history of laundry detergent in the domestic market.

As more and more brands begin to enter this field, the detergent market is gradually saturated, coupled with its low technical barriers and other reasons, Blue Moon's growth in recent years has also encountered a lot of challenges.

Gross profit margin of a bottle of detergent is 64%

According to Frost Sullivan, Blue Moon has occupied the No. 1 position in China's laundry detergent market over the past 11 years, but the company's performance growth is declining.

According to the prospectus, between 2017 and 2019, Blue Moon achieved revenue of HK $5.632 billion, HK $6.768 billion and HK $7.05 billion respectively, with revenue growth falling from 20.2% to 4.2%. The corresponding net profit was HK $86 million, HK $554 million and HK $1.079 billion, but the growth rate slowed to 94.9% from 544.2%.

Source: prospectus

Specifically, Blue Moon's revenue is mainly composed of three parts, namely, clothing cleaning care products, personal cleaning care products and household cleaning care products, of which clothing cleaning care products account for the highest proportion, basically maintained at about 87.5%. It can be said that clothing cleaning care products are the absolute core of Blue Moon.

But the growth rate of core products is also declining, from 31.5% in 2018 to 18.0% in 2019. The decline in core product growth is clearly not good news for Blue Moon.

Source: prospectus

In the past three years, the overall gross profit margin of Blue Moon was 53.18%, 57.42% and 64.16%, respectively. The gross profit margin of clothing cleaning care products also increased from 51.7% in 2017 to 56.6% in 2018 and 63.9% in 2019.

Blue Moon explains that this is mainly due to the company's cross-selling strategy: an increase in sales of products with higher gross margins will drive down the cost of selling products with lower gross margins.

It has been rumored that "layoffs in disguise"

According to our observation, the improvement of Blue Moon gross profit margin, in addition to the weak "open source" of product sales, is mainly due to the "cost savings".

In 2019, the overall cost of Blue Moon's household cleaning care products fell significantly as the price of palm oil, the main raw material for daily chemical products, fell.

The Frost Sullivan report shows that the average market price of palm oil has been declining slowly since 2017, falling by about 26.9% in the first four months of 2020.

At the same time, Blue Moon's cost of sales decreased by 12.3% from HK $2.882 billion in 2018 to HK $2.527 billion in 2019, of which advertising and promotion expenditure decreased from HK $714 million in 2017 to HK $707 million in 2018 and further to HK $699 million in 2019, falling for two consecutive years. Employee welfare expenditure decreased by 19% to HK $1.063 billion compared with 2018.

The total number of Blue Moon employees fell from 14362 to 11196 between 2017 and the end of 2019, cutting 3166 in two years, according to the prospectus.

Such a large reduction has also aroused a lot of doubts from the outside world.

In March this year, a number of media reported that Blue Moon had "deducted wages in disguise" and "laid off staff in disguise".

In this regard, Blue Moon (China) official Weibo issued a statement on March 13, saying: the company is in good condition, there are no layoffs plans, there are no "large-scale layoffs." The turnover process of the company's employees is handled in accordance with the regulations, and there is no deduction of wages for no reason.

Although Blue Moon refuted the rumors of "layoffs", according to Sky Eye data, the judicial risk of Blue Moon (China) Co., Ltd. is 999 +, including 312 labor disputes and 90 labor contract disputes.

The most recent trial took place in June this year, when the plaintiff Yuan Mou was involved in a labor dispute with the defendant Blue Moon (China) Co., Ltd., case number (2020) Xiang 0111 3762 at the beginning of the Republic of China.

In the end, the people's Court of Yuhua District, Changsha City, Hunan Province, ordered the defendant Blue Moon (China) Co., Ltd. to compensate the plaintiff Yuan for a total of 21206.05 yuan in economic compensation, wages, and untaken annual leave wages, and at the same time cooperate with the plaintiff to go through the departure formalities within 10 days from the effective date of the judgment.

Source: China referee Writing Network

At the same time, Blue Moon also mentioned in the prospectus that employees may be fined and punished for failing to pay full social insurance and housing provident fund.

However, whether affected by the reduction in raw material prices or internal cost control, this is not a desirable way to steadily increase gross profits in the long run.

If you want to maintain the company's rapid revenue and profit growth, Blue Moon also needs to face the problem of a single product structure.

A single product is in a dilemma.

Blue Moon's product category is relatively simple, of which laundry detergent contributes the most income.

Revenue from Blue Moon clothing cleaning and care products was HK $6.178 billion, or 87.6 per cent, in 2019, according to the prospectus. Personal cleaning care products and household cleaning care products contributed 5.9% and 6.5% of the income, respectively.

Source: prospectus

In terms of category, detergent is the main revenue force of Blue Moon; in terms of sub-brands, although other brands such as Weinuo and Supreme have launched in recent years, they do not have a high sense of existence compared to the main brand Blue Moon.

Blue Moon's multi-brand strategy has not been fully reflected in financial figures.

On the other hand, Blue Moon's competitors have done a lot of exploration in categories and sub-brands.

Nice goes hand in hand with "soap, powder and liquid" in washing products, and has many brands and series, such as toothpaste, shampoo, body wash and so on.

Libai's "big day, multi-brand" strategy has been very mature, and its product matrix includes shampoo, shampoo, toothpaste, cosmetics and so on.

And Blue Moon doesn't seem to be interested in a market other than laundry detergent.

When Bilang, Tide and Langqi launched laundry beads one after another in 2014, Blue Moon did not follow up.

According to the data of China detergent Industry Association

The output of laundry beads in China reached 128 million in 2018, an increase of 106.5% over the same period last year.

The market size reached 511 million yuan, an increase of 122.17% over the same period last year.

Since then, the popular paper laundry detergent and high-end The Laundress detergent have not aroused the interest of Blue Moon.

Obviously, it is unwise to put all the eggs in the same basket. Song Qinghui, an economist, believes that relying on a single brand is a major disadvantage for Blue Moon, which leads to poor risk resistance of enterprises.

Blue Moon is also aware of this, saying in the prospectus: "if our clothing cleaning care products are no longer popular and we cannot launch replacement products in time, our sales and profits may drop significantly."

According to the data of the prospective Industrial Research Institute, at present, the market concentration of China's laundry detergent industry is relatively high. In 2019, the total market share of the top five detergent enterprises was 81.4%. Among them, Blue Moon ranked first with 24.4%, Nice ranked second, accounting for 23.5%, and Libai Group ranked third with 12.3% market share.

Photo Source: forward-looking Industrial Research Institute

Although Blue Moon ranks first, but with the second Nice's market share gap of less than 1 percentage point, a little carelessly may lose the first place.

In the face of fierce competition in the detergent market, Blue Moon has no new products to push and is eager to expand its market share, so it has reduced prices on its three major product lines.

In 2019, the average selling price of Blue Moon clothing cleaning care products fell 5% year-on-year to 12.1 Hong Kong dollars / kg, personal cleaning care products dropped 4% year-on-year to 12.9 Hong Kong dollars / kg, and household cleaning care products dropped 4.8% to 13.8 Hong Kong dollars / kg.

Summary

According to the data, by 2019, the penetration rate of detergent in the US market is as high as 91.4%, while that in the Japanese market is as high as 79.5%, while that in the Chinese market is only 44.0%, which still has a lot of room for growth. This is also one of the reasons why many investors are optimistic about the blue moon.

However, the problems of slow upgrading of Blue Moon and single product line are also revealed in the prospectus. If you only rely on detergent products to walk on one leg, instead of developing and promoting new products, you may encounter challenges from competitors in the future.

Contemporary British management guru Charles handy (Charles Handy) points out in his book the second Curve that any growth curve will slide over the vertex of the parabola (the limit of growth) and that the secret of sustained growth is to start a new S-curve before the first curve disappears. At this point, the time, resources and motivation are enough to carry the new curve through its initial exploration struggle.

This theory is often used in the development and management of enterprises. Successful managers must live to death, find another way, jump over the "traps" laid by success again and again, and open up a new path that is completely different from the current one. Find the second curve for organizations and enterprises to achieve the next growth.

In the past few years, the homogenization of laundry liquid products has become more and more serious, and the idea of brand expansion is also very close, which is the mode of advertising plus channel.

Advertising to solve brand and problems, channels to solve access and sales problems. However, this strategy can easily be emulated by competitors.

This is especially true when returning to Blue Moon. In order to enhance brand awareness, Blue Moon carries out marketing through online and offline marketing, sponsoring national TV programs, holding offline theme activities, placing commercial advertisements, inviting celebrities to endorse, and so on.

By the end of 2019, Blue Moon had 1267 offline distributors, covering all provinces in China, and the company's sales team had 7305 full-time employees, accounting for more than 60 per cent of the company's total full-time employees.

If one day Blue Moon's competitors spend more efforts on marketing, lay out more channels to reach consumers, or when more cost-effective products appear, Blue Moon's advantage may gradually fade.

While all this is a challenge for a company, it can't stop Blue Moon from raiding dividends.

On the eve of the listing, Luo Qiuping and Pan Dong, the company's controllers, enjoyed a wave of dividends early through their shareholding Aswann, taking away about HK $2.3 billion.

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