Blue Moon: Selling and Distribution Expenses Dragged Earnings; Valuation Down 5% to HKD 2.67

Despite a roughly 38% year-on-year increase in first-half 2024 revenue and higher gross margin, narrow-moat Blue Moon said that it would record a preliminary net loss of about HKD 665 million. The loss was mainly due to an increase in selling and distribution expenses as the company ramped up investments in channel expansion, especially in the livestreaming platforms. We have previously flagged the potential drag of higher channel expenditures, but the impact to Blue Moon's earnings was larger than expected. As a result, we cut our full-year 2024 earnings estimate to a net loss of HKD 936 million from a net profit of HKD 378 million. We also expect the impact of higher channel expenditures to persist in 2025 before normalizing in 2026. Hence, we lowered our 2025 earnings estimate by 22%, but our longer-term forecasts are largely unchanged.