Trends Appear to Be Normalizing for Blue Moon After Pricing Disruption in First Half

Blue Moon had already disclosed that its first-half performance would be nowhere near expectations, and it was a relief the release of interim results brought no more bad news. In fact, confirmation from management that price discounts and distribution trends had normalized in the first few weeks of the second half of the year increases our conviction that the gross margin contraction, caused by aggressive distributor discounting and bundling, is not likely to be sustained. We have fine-tuned our valuation assumptions and now assume a slightly lower long-term revenue growth rate, and as a result we are lowering our fair value estimate to HKD 10.50 per share from HKD 12. This, however, does not change our investment thesis that Blue Moon is undervalued and the company has strong growth drivers ahead.