China Consumer

Cleaning up

Detergent maker Blue Moon completes well-timed IPO in Hong Kong

Blue-Moon-w

Blue Moon: top-selling soap

Outgoing American President Donald Trump was lambasted last year after suggesting that Covid-19 could be treated by injections of disinfectant (he later said the remark was made in jest).

A professor of infectious diseases in Hong Kong also drew widespread local comment last month by flagging the risk that coronavirus was spreading via drainage systems. Responding to his warning, people flushed huge quantities of detergent through their household pipes, resulting in bubbly bathrooms.

Squeaky-clean homes and heightened personal hygiene are nevertheless an essential part of fending off higher infection rates amid the Covid-19 pandemic. Against this backdrop, Blue Moon, a Chinese detergent maker launched its initial public offering with immaculate timing. Following a 37% leap in its share price in less than a fortnight, the company’s market value stood at more than HK$100 billion ($12.9 billion) as of Thursday. That means that its founder and chief executive Luo Qiuping and his wife Pan Dong – who serves as board chairwoman – are now one of China’s richest couples, thanks to their 77% combined stake.

According to market research cited in its listing prospectus, Blue Moon has been the leader in China’s liquid laundry and liquid soap market for 11 years in a row since 2009. However, liquid soap is a relatively new concept for Chinese consumers. Even in the 1980s, bars of soap were the more common cleaning agent – even in more cosmopolitan cities – to wash hands, bodies and even clothes.

Luo is a Hubei native who graduated from the University of Wuhan in 1984 in chemistry. After receiving a postgraduate degree from the Chinese Academy of Sciences three years later, he gave up his studies and founded a detergent maker in Guangzhou with his father and several classmates. “The several pliers and screwdrivers that we had were our Plan B should we fail,” Luo recalled in a later speech to his alma mater. “We would then have offered our trade in motorcycle repairs in Guangzhou instead.”

Blue Moon was founded in 1992 when the detergents that Luo had invented began to make commercial inroads. By 2003, the company had grown into a regional leader as the Chinese began to turn to more sophisticated cleaning products in the wake of the SARS outbreak.

The China Times says the rise of Blue Moon also underscores the successful mentorship of Hillhouse Capital, its angel investor. Hillhouse’s founder Zhang Lei established his private equity firm in 2005 after working under the legendary David Swensen at Yale’s endowment fund. Zhang glimpsed a market opportunity when he struggled to find the kind of handwash that he had preferred in the US in China. He talked to a number of the international detergent makers about introducing it but they turned down his idea in the belief that there was insufficient demand in the Chinese market.

Zhang then turned to Luo and Hillhouse co-invested in a new laundry detergent venture with Blue Moon. By 2010 it had taken 44% share in the market, China Times reports. Hillhouse also encouraged Blue Moon to grow its sales network online by lining up cooperation with JD.com, an e-commerce major in which Zhang had invested.

Hillhouse has held its stake for over 10 years and Blue Moon is now trading at nearly 90 times trailing earnings. Given the competitive struggles in the Chinese marketplace – particularly in sectors like consumer goods – there is no certainty that it will keep its leading position. Nearly all the major global players are trying to grab more of the liquid soap market, while domestic competitors – now able to match the quality levels of the overseas producers, but which are better positioned to respond to changes in local consumer trends – are a major threat too.


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