Author: Blue Danube Editor: Xiao Shimei
html How much is a daily chemical company that earns 1 billion Hong Kong dollars in 4 years worth?
In December last year, the answer given by Blue Moon (06993.HK) when it was listed was HK$77.1 billion, which means that compared to the company’s net profit attributable to the parent company in 2019 of HK$1.08 billion, the static price-to-earnings ratio reached 71.4 times.
In the same period, the global daily chemical giant Procter & Gamble (PG.US) was 26 times, Unilever (UL.US) was 23 times, and the average value of the household and personal products industry was 31 times.
Why does Blue Moon obtain a valuation premium that is much higher than that of its peers?
, which has only been listed for more than half a year, has seen its share price halve. Its share price has dropped from a high of HK$19.16 per share in January to HK$10.90 per share today (June 24). Its market value has dropped by HK$48.4 billion, or approximately RMB 40.3 billion. Yuan. What is the inevitability behind this?
[Tell the story of "China's Procter & Gamble"]
Historically, as long as daily chemical companies gain a firm foothold in the industry, their stock prices will most likely be able to follow a long-term slow bullish trajectory. Procter & Gamble is such an example. According to
data, P&G's stock price has risen from US$1.68 per share to US$145 per share since 1986. Excluding dividend income, the annualized rate is as high as 13%.
▲Image source: Flush iFinD
When Blue Moon was launched, it was known as China's P&G. The company occupied the first position in the industry in the three major household cleaning subcategories of laundry detergent, concentrated laundry detergent, and hand sanitizer.
Blue Moon has achieved such a market position by first taking root in China, a market with the fastest growth in the global household cleaning industry.
A Frost & Sullivan report shows that from 2015 to 2019, the total retail sales value of China’s home cleaning and care industry increased from 90 billion yuan to 110.8 billion yuan, with a compound annual growth rate of 5.3%, which is higher than the global home cleaning industry during the same period. 2.5% in the nursing industry. It is expected to reach 167.7 billion yuan by 2024, with a compound annual growth rate of 8.7%, and will account for more than one-third of the incremental market in the global home cleaning and care industry during the period.
In the household cleaning care market of more than 100 billion, the clothing cleaning care market including laundry detergent occupies the vast majority of the market share. In 2019, the data was 61.2%. Home cleaning care products and personal cleaning care Products followed, accounting for 30.2% and 8.6% respectively.
This is basically consistent with Blue Moon’s revenue structure. In 2020, Blue Moon’s clothing cleaning and care products accounted for 80% of total revenue, while household cleaning products and personal cleaning care revenue accounted for 8.1% and 11.9% respectively.
▲ Source: Blue Moon 2020 Annual Report
In addition, in the past few years, Blue Moon has dominated the consumption upgrade phenomenon of "liquid replacement for powder" in the daily chemical industry, and it handed over a quite eye-catching report card when it was launched. From 2017 to 2019, the company's revenue increased from HK$5.63 billion to HK$7.05 billion, with a compound annual growth rate of 11.9%; net profit increased from HK$86 million to HK$1.07 billion, with a compound annual growth rate of 254%. At the same time, the company's overall gross profit margin increased from 53.2% to 64.2%, and its net profit margin increased from 1.5% to 15.3%, leading the industry in profitability.
At this point, the image of a "China P&G" emerges vividly on the paper. This is the big logic behind Blue Moon's IPO last year, which achieved an issue price of HK$13.16 per share.
[The inevitability of the stock price cutting in half]
Blue Moon was listed less than a month ago. Affected by the good news of "the inclusion of Hong Kong Stock Connect ", the stock price rose to 19.2 Hong Kong dollars per share, and the static PE reached 104 times. At this time, it must be said that Blue Moon The moon has drifted a little.
As expected, Blue Moon's stock price only lasted for about a month between 15 Hong Kong dollars/share and 18 Hong Kong dollars/share, and then plummeted from 17 Hong Kong dollars/share to 9 Hong Kong dollars/share, falling below the issue price.
▲ Source: Oriental Fortune Choice
During the 4 period, Blue Moon released the 2020 annual report with a slowdown in performance growth. However, before that, the company's stock price had dropped from the range of 15.5-17 Hong Kong dollars/share to 12.5 Hong Kong dollars/share, a drop of 20 %-30%. After the annual report was released, its stock price fell another 25% to HK$9 per share.The trend of
K line chart shows that performance is not the only factor that caused Blue Moon’s stock price to halve this time. The greater logic lies in the capital market’s rational return to Blue Moon’s “China P&G” story.
looks at this discussion from the following two aspects.
On the one hand, Blue Moon’s lead is obviously overestimated.
As mentioned earlier, Blue Moon’s leading market position is evidenced by the company’s share ranking first in the three major market segments of laundry detergent, concentrated laundry detergent, and hand soap for many consecutive years.
However, this "lead" is somewhat "confusing".
First, Blue Moon has not opened a clear gap with the second place in the above three major fields, and its leading advantage may be overtaken at any time.
Data in 2019 show that in the field of laundry detergent, Blue Moon’s market share is 24.4%, is only 0.9 percentage points ahead of the second place; in the field of hand sanitizer, Blue Moon’s market share is 17.4%, is only 0.04 percentage points ahead of the second place. ; In the field of concentrated laundry detergent, Blue Moon has a market share of 27.9%, and is only 1.1 percentage points ahead of the second place.
▲ Picture source: Frost & Sullivan, Guotai Junan Securities Research
Second, the classification of cleaning products in the Frost & Sullivan report is mainly based on product form, but consumers use solutions when purchasing daily. Problems dominate. For example, washing powder and laundry detergent can solve consumers' laundry problems. They are in direct competition. Similarly, soap and hand sanitizer are also in direct competition.
From this perspective, Blue Moon’s “leading advantage” in the daily chemical industry is not obvious. In the clothing cleaning and care market segment including laundry detergent and laundry detergent, the company has a market share of 10.4%, ranking fourth in the industry, and the number one market share is 25.4%; the company has a market share of 10.4% in the personal care segment including hand sanitizer and soap. In the cleaning and care segment, the company has a market share of 5%, ranking fourth, and the industry's No. 1 market share is 48.7%; in the household cleaning and care market segments such as toilet cleaners and dishwashing detergents, the company has a market share of 5%. 1.7%, ranking fifth, and the industry’s first market share is 32.1%.
On the other hand, the daily chemical industry is highly concentrated and has limited room for improvement.
The daily chemical industry is a very old industry. Procter & Gamble has been established for more than 180 years. Most of the daily chemical companies in China have a history of 20 or 30 years. These companies have formed a relatively strong relationship in the fierce competition for many years. The market structure is stable and industry concentration is at a high level.
Taking 2019 as an example, in the laundry detergent market, five brands including Blue Moon, Naisi, and Liby accounted for 81.4% of the market share. In the hand sanitizer market, the top five brands in the industry The company occupies a market share of 71.3%... This makes it difficult for leading brands to achieve growth through increased industry concentration.
This situation also means that, apart from acquiring and merging peers, it is difficult for leading companies in the daily chemical industry to achieve a growth level that exceeds the industry average. Against this background, it was difficult to maintain the valuation premium that Blue Moon had previously achieved.
A simple calculation: According to Frost & Sullivan's report forecast data, China's laundry detergent market size is expected to be 51.5 billion yuan in 2024, assuming that Blue Moon maintains a 25% share and revenue of 13 billion yuan; China's hand sanitizer The market size is expected to be 8.4 billion yuan in 2024, assuming that Blue Moon’s market share continues to be 17%, with revenue of 1.4 billion yuan; China’s home cleaning market size is expected to be 55.5 billion yuan in 2024, assuming that Blue Moon accounts for 2%, with revenue reaching 1.1 billion yuan.
Without acquisitions and mergers, Blue Moon’s revenue in 2024 will be approximately 12.7 billion yuan (deducting the 17% value-added tax rate), which is a compound annual growth rate of 21.2% compared to 2020 revenue of 5.888 billion yuan. If calculated based on the company's average net profit rate of 14% in the past three years, the corresponding net profit is 1.78 billion yuan. Compared with the net profit of 1.102 billion yuan in 2020, the compound annual growth rate of net profit in the next four years is 12.7%.
At present, Blue Moon's static price-to-earnings ratio is 48 times. Based on the 2020 net profit of 1.102 billion yuan, Blue Moon can only digest it by maintaining a compound annual growth rate of 26% in net profit in the next ten years from 2020 to 2030. Current valuation.
Obviously, the current Blue Moon is too expensive, and a downward adjustment in the stock price is logical.
[Unsustainable profit level]
In the story of Blue Moon "China P&G", in addition to creating high growth in the company's performance, the company has indeed delivered an enviable profit level.
In the past four years (2017-2020), Blue Moon's gross profit margin has increased from 53.2% in 2017 to 64.5% in 2020. The average gross profit margin level is about 60%, which is 10 percentage points higher than P&G, which has a more obvious leading advantage. Affected by the rapid increase in gross profit margin, Blue Moon's net profit margin has also increased year by year, reaching a record high of 18.7% in 2020.
▲Data source: Blue Moon Annual Report
Why has Blue Moon’s profitability improved qualitatively in the past three years (2017-2020)?
Market Value Observation discovers the secrets by decomposing company financial report data.
We start from the calculation formula of gross profit margin "Gross profit margin = (revenue - cost) / cost", then the improvement of gross profit margin is nothing more than an increase in revenue and a reduction in cost, or the revenue growth rate is higher than the cost growth rate.
From 2017 to 2019, Blue Moon's revenue increased from 4.708 billion yuan to 6.315 billion yuan, with a compound annual growth rate of 15.8%. During this period, Blue Moon's sales cost increased from 2.204 billion yuan to 2.264 billion yuan, with a compound annual growth rate of 15.8%. Less than 1.4%.
In other words, Blue Moon's revenue grew rapidly during this period, but its costs remained almost unchanged, so its gross profit margin was naturally greatly increased. But does Blue Moon’s revenue growth come from price increases or incremental growth?
The prospectus shows that from 2017 to 2019, the unit price of Blue Moon's cleaning products dropped from HK$12.5/kg to HK$12.3/kg, while the company's net sales increased from 450 million kilograms to 570 million kilograms, indicating that Blue Moon's revenue growth is mainly from incremental contributions.
▲ Source: Blue Moon Prospectus
The increase in product sales is inseparable from the dependence on the supply of raw materials. According to the cost structure of Blue Moon cleaning products, the two raw materials of palm oil (accounting for 45%) and polyethylene (accounting for 35%) account for 80%-90% of its sales costs.
Fortunately, in the past few years, the futures prices of these two major raw materials have been in a downward cycle, laying the foundation for Blue Moon's beautiful profit data.
At present, the prices of related raw materials have shown a correction trend. Previously data released by the Food and Agriculture Organization of the United Nations showed that the quotation of palm oil in May this year has reached the highest level since February 2011, which will definitely have an impact on Blue Moon's gross profit margin. Cause a certain amount of pressure.
In addition, we also have doubts about the maintenance of Blue Moon's current net interest rate level. On the one hand, when gross profit margins come under pressure, net profit margins will be affected. On the other hand, the increase in Blue Moon's net profit margin is based on its vigorous control of expense rates, especially the sales expense rate of and . The financial report shows that from 2017 to 2020, Blue Moon's sales expense rates were 36.7%, 38%, 33% and 28.8% respectively, showing a straight downward trend.
But among them, Blue Moon's method of reducing sales expenses by significantly reducing sales staff and unpaid provident funds has attracted controversy. Annual report data shows that the number of Blue Moon's sales personnel continues to decline. In 2017, the company had 10,432 sales personnel, and by the first half of 2020, this number dropped to 4,582. sales personnel were laid off more than half in three years.
The 2020 annual report mentioned that Blue Moon’s sales expenses dropped 13.2% from HK$2.323 billion to HK$2.016 billion last year, mainly due to the impact of the epidemic, the company’s streamlining of offline teams and the government’s subsidies for employees’ social security expenses. It is worth noting that Blue Moon did not announce the number of its sales personnel in its annual report.
In summary, we also have certain concerns about the maintenance of Blue Moon's current profitability level.
When the capital market sees clearly the true face of Blue Moon’s blurred competitive advantages, limited growth space, and difficulty in improving its profitability, a stock price correction is a matter of course.
Disclaimer
This article involves content about listed companies and is the author’s personal analysis and judgment based on the information publicly disclosed by listed companies in accordance with their legal obligations (including but not limited to temporary announcements, periodic reports and official interactive platforms, etc.); the content in the article The information or opinions do not constitute any investment or other business advice and Market Cap Watch disclaims any liability for any actions resulting from this article.
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