Brief China: Blue Moon IPO: Product Innovation and Online Channels Are the Secrets to a Gentle Clean and more

In this briefing:

  1. Blue Moon IPO: Product Innovation and Online Channels Are the Secrets to a Gentle Clean
  2. Li Auto IPO Initiation: On a Charge
  3. China Internet Weekly (13Jul2020): Alibaba’s Freshippo and Ele.me Exploring Cities and Businesses
  4. FMCG Is the Next Big Growth Driver & Battleground for China E-Commerce; Big Tech Moves In Force
  5. China STAR Board – Launch of STAR50 Index and Inclusion in SSE Composite Indices

1. Blue Moon IPO: Product Innovation and Online Channels Are the Secrets to a Gentle Clean

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  • Blue Moon, a leading consumer household care company in China has filed for an IPO to list its shares on the Hong Kong Stock Exchange. According to the news media outlets, the company is seeking to raise about US$1bn through its public offering.
  • The company offers a wide range of products under three segments fabric care, personal hygiene products and home care products. Our analysis of the company financials reveals that despite a slowdown in the company’s revenue growth, its margins have been significantly improving.
  • The company has been the first to launch several new products such as liquid detergent and liquid soap to the Chinese market and the first mover advantage has helped the company grow its revenues and market share.
  • Blue Moon has effectively utilised the growing e-commerce penetration in China which has helped the company generate a majority of its revenues through online retail channels.
  • Though declining revenue growth remains a concern, we believe strong growth prospects attached to the Chinese household care market should help Blue Moon to generate stable revenues.

2. Li Auto IPO Initiation: On a Charge

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Lixiang Automotive (LIX CH)/Li Auto is the first company to successfully commercialise EREVs (extended-range electric vehicle) in China, the Li ONE. Li ONE is a six-seat, large premium electric SUV which began volume production and deliveries in November 2019 and December 2019, respectively. Li Auto is backed by Meituan Dianping (3690 HK) which owns 14.5% of ordinary shares (5.8% of voting power). It is seeking to raise $500 million through a Nasdaq IPO, according to press reports. 

The IPO seems to be timed to take advantage of the surging share prices of NEV (new energy passenger vehicles) manufacturers such as Tesla Motors (TSLA US) and NIO Inc (NIO US). However, NIO’s wild share price swings suggest that investing in the China NEV sector requires nerves of steel. On balance, for investors seeking exposure to the China NEV sector, Li Auto’s fundamentals are attractive, in our view.

3. China Internet Weekly (13Jul2020): Alibaba’s Freshippo and Ele.me Exploring Cities and Businesses

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  • Alibaba (BABA)’s Freshippo opened two “Freshippo-mini” stores in Beijing.
  • Alibaba (BABA)’s Ele.me began to deliver goods other than cooked food.
  • The smart phone shipment decreased by 16.6% YoY in June, worse than 11.8% YoY in May.

4. FMCG Is the Next Big Growth Driver & Battleground for China E-Commerce; Big Tech Moves In Force

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FMCG E-Comm is China Tech’s Next Big Growth Driver & Battleground

At a time when overall retail e-commerce in China has already reached 44% penetration, e-commerce penetration for fast-moving consumer goods (“FMCG”) still lags behind tremendously. According to Euromonitor International, only 6.3% of fresh foods and 8.8% of alcoholic beverages were purchased online in 2019.

This gap represents a major growth opportunity as consumers, having grown accustomed to the convenience and safety of ordering FMCG products online, are now permanently shifting purchasing behaviors.

Already, Chinese Tech giants such as Alibaba and JD.com have moved in force – doubling down on their FMCG investments via Freshippo and JD Supermarket. Tencent is also making its own moves – investing in grocery startup Xingsheng Youxuan and valuing it at US$3bn.

Investors have taken note of this upcoming structural trend and have also moved in size. As seen in the chart below, companies with exposure to FMCG e-commerce have handily beat the broader market with names like Pinduoduo and Meituan Dianping doubling in value in just two months. Dada Nexus, an online grocery firm backed by JD.com, also chose to IPO in early June despite the COVID backdrop – its stock price has since soared by 100%+.

Source: Capital IQ, Zero One. Note: Dada Nexus return calculated based on IPO date (June 5, 2020).

Read our previous FMCG E-Commerce Insights:

5. China STAR Board – Launch of STAR50 Index and Inclusion in SSE Composite Indices

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The China STAR market (or the Science and Technology Innovation Board, or China’s reply to the NASDAQ) started trading on 22 July 2019 with 25 stocks listed. Currently, there are 123 stocks listed on the STAR Board.

Turnover has picked up over the last few months as the market moves higher and tries to reach the highs that it did in August 2019.

To celebrate its first anniversary, there have been a number of announcements made on inclusion eligibility of STAR Board stocks in the Shanghai Stock Exchange Composite index, potential inclusion of STAR Board stocks in the Stock Connect program, and the launch of the STAR 50 index. Put together, this should increase the visibility of the stocks listed on the STAR Board by improving accessibility and bringing passive index flow in to the market.

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