Blue Moon Earnings: Promotional Expenses Weighted on Profits; We Cut Our Fair Value Estimate by 5%

Narrow-moat Blue Moon’s first-half results were largely in line with its profit warning announcement in July. Top-line growth was primarily driven by the online channels, but selling and distribution expenses doubled year on year due to the increased promotional expenses to drive sales growth. The first interim dividend since listing of HKD 0.04 per share was a positive surprise, indicating management’s intention to enhance shareholder returns despite being loss-making during the period. We now expect the firm’s dividend per share to be HKD 0.06 for full-year 2024, unchanged year on year. We cut our fair value estimate to HKD 2.55 per share, from HKD 2.67, to account for the lower cash balance given the dividend payout in 2024. We expect the 2025 dividend to remain stable before improving in 2026 on the back of earnings recovery. In our view, Blue Moon is currently undervalued, but its 2024 dividend yield of 2% is not attractive versus peers. We believe the firm will need to deliver earnings improvement before it can be rerated by investors.