What's new
　　L’Occitane provided a FY1Q21 revenue update: FY1Q21 revenue fell22.2% YoY to EUR274mn (-22.2% in constant rates), caused by: 1)lockdowns in Europe and the Americas due to COVID-19 with US salesdown 12% YoY and France and UK sales down 34% and 19% YoY; 2)Japan sales suffering from both stores closures and a consumptiontax hike, with sales down 25% YoY. This was offset by a strongperformance in the Chinese mainland and Taiwan, with sales up 23%and 19% YoY, and by strong online channel performance (+96% YoY).
　　Brand-wise, L’Occitane en Provence (LeP) fell 26% YoY due to storeclosures; ELEMIS fell 29% YoY largely due to a calendar mismatch(FY1Q20 included 4 months of sales due to acquisition accounting).
　　Otherwise, ELEMIS fell 4% in a same-on-same comparison. LimeLifecame back to life with 54.5% YoY growth thanks to new productlaunches, flash sales, and new beauty guide recruits.
　　Comments
　　Management said on the earnings call that: 1) ELEMIS receivedpositive feedback following its July launch in the Chinese mainland,with 100 stores now open (to increase to 120 by end-July); 2) itexpects FY21 revenue to decline 5–10% YoY at a 5–7% overalloperating margin (OPM), with LeP recording low-to-mid-single-digitOPM and ELEMIS OPM at 25%; 3) June performance better than Apriland May, with July month-to-date in line with June; and 4) it willmaintain marketing expenses at pre-COVID levels to preservedesirability of brands.
　　Valuation and recommendation
　　FY1Q21 sales numbers and management’s guidance for FY21 revenuewere better than we expected, and margins were lower than weexpected due to higher fixed costs. As such, we lift our FY21 andFY22 revenue forecasts 31% and 14% on a strong online channelperformance, but fine tune our FY21 and FY22 net profit forecastsby -34% and +1% to reflect an updated costs structure.
　　As our valuation was based on FY22 forecasts, we maintain ourOUTPERFORM rating and target price of HK$15.00, based on 19xFY22e P/E. The stock is trading at HK$13.38, implying 16x FY22e P/E.
　　Our TP offers 12.1% upside.
　　Risks
　　Worsening of COVID-19; slower-than-expected ramp-up for Elemis;forex fluctuations; impairment charges.