Detergents maker claims market dominance

Blue Moon Group, China's largest liquid detergent maker, is said to be preparing to launch a Hong Kong initial public offering soon, which could raise about US$1 billion (HK$7.8 billion).

The Guangzhou-based company has been backed by high-profile private equity firm Hillhouse Capital since 2010 when it invested US$45 million in Blue Moon as the only external investor.

Blue Moon has hired China International Capital Corporation (3908), Citigroup and Merrill Lynch Far East as joint sponsors of the flotation.

The company plans to use the net proceeds to expand production capacity, raise brand awareness, finance investments or mergers and acquisitions, and strengthen sales and distribution network, research and development capabilities, as well as IT infrastructure.

Blue Moon was founded in 1992 when it launched its first kitchen cleaner. It has gained recognition thanks to its liquid soap products, which was firstly released in 2000, as mainlanders' awareness about personal hygiene surged after the deadly SARS epidemic in 2003.

Similar to Chinese bottled water giant Nongfu Spring (9633), which soared as much as 85 percent on its market debut in September, Blue Moon has high gross profit margins, rising 6.8 percentage points year-on-year to 64.2 percent in 2019. That was ahead of its international counterparts including Procter & Gamble and Unilever, whose gross profit margins were below 50 percent last year. Other major domestic rivals like Walch and Liby Group, which are privately owned, do not release financial data.

Blue Moon says the increase in gross profit margin is helped by the decline in costs of palm oil-based raw materials, better inventory and procurement management, improving production efficiency as well as increasing sales of products with high gross profit margin.

The company's net profit surged by 5.4 times to HK$553.99 million in 2018 and nearly doubled to HK$1.08 billion in 2019.

Revenue, meanwhile, grew by 20.17 percent year-on-year to HK$6.77 billion in 2018, driven by increasing sales through e-commerce channels and rising sales of fabric care products. But the growth slowed down to 4.17 percent last year, with annual revenue of HK$7.05 billion.

Blue Moon says it had the largest market share in China's liquid laundry detergent market for 11 consecutive years from 2009 to 2019, citing a commissioned report from Frost & Sullivan. However, its market share declined to 24.4 percent last year from a peak of over 50 percent, and it was less than 1 percentage point higher than the second-largest player.

Blue Moon's revenue mainly relied on fabric care products, which contributed more than 87 percent of revenue from 2017 to 2019.

Its competitors like P&G and Unilever have more diversified portfolios, providing products ranging from hair, oral, beauty to baby care. And Liby has been expanding its product mix to pet care and mosquito repellents. Liby's Cheerwin Group, which provides home care, personal care, and pet care products, is targeting a US$300 million Hong Kong IPO, IFR reported last month.

Blue Moon has put more effort into upgrading liquid laundry detergents. It launched its first concentrated liquid laundry detergent in 2015, where the firm sees huge growth potential.

In 2019, penetration rates of concentrated liquid laundry detergents in Japan and the United States reached 100 percent, while the penetration rate in China was only 8.2 percent, according to the Frost & Sullivan report.

But the sales volume of the concentrated liquid laundry detergents is less than 5 percent of traditional products at Blue Moon's Tmall store.

Blue Moon is aiming to further utilize the online sales channels, where it generated nearly half of revenue last year. Meanwhile, it brought its products back to major supermarkets late last year, as it lost offline market share after withdrawing products from retail chains including Carrefour and Sun Art Retail's (6808) RT-Mart in 2015.