FY2020 results miss
　　L’Occitane reported its FY20 results: Revenue was EUR1,644mn, up15.2% YoY (+12.8% YoY at constant rates) while net profit to equityowners was EUR116mn, down 1.6% YoY, missing consensus(EUR138mn) by 16%. The company reported FY20 revenue on May 5.
　　FY20 earnings missed on: 1) a one-off EUR5.3mn cost related to theELEMIS acquisition and a EUR1.8mn cash expense due to Swiss taxhike; and 2) EUR5.6mn non-cash expense due to IFRS16 and anotherEUR6.7mn non-cash expense due to accounting discrepanciesbetween US GAAP and Group IFRS. This was offset by: 1) groupoperating margin improving 0.8ppt YoY thanks to a better brand mix;and 2) channel mix gravitating to both higher margin ELEMIS (0% to10.1%) and the sell-in channel (25% in FY19 to 31% in FY20).
　　Trends to watch
　　Management said on the earnings call that: 1) it estimates sales lostdue to COVID-19 was EUR56mn, or 3% of total FY20 revenue(operating profit loss estimated at EUR34mn, or 18% of FY20operating profit); 2) FY20 EPS rose 2% excluding the IFRS16 impact; 3)covenant breach is not a concern, thanks to an additional EUR203mncredit line and a EUR50mn loan guaranteed from the Frenchgovernment; 4) ELEMIS to kick off marketing in the Chinese mainlandon July 15 and should grow in the mid-to-high single digits YoY inFY21 globally; and 5) it reiterates a midterm target of EUR2bn inrevenue with a 15% operating margin.
　　Financials and valuation
　　We leave our FY21 and FY22 revenue forecasts largely unchanged,but raise our FY21 and FY22 net profit forecasts from EUR32mn andEUR128mn to EUR75mn and EUR131mn on a better-than-expectedoperating margin in FY20. The stock is trading at 15x FY22e P/E; wemaintain OUTPERFORM and our TP of HK$15.00 (19x FY22e P/E),offering 20% upside.
　　Risks
　　Worsening of COVID-19 situation; slower-than-expected ramp-up forElemis; forex fluctuations; potential impairment charges.