What's new
　　L'Occitane released sales performance for 3QFY22 （ended December 31, 2021）： Revenue increased 13.5% YoY to EUR650mn （up 9.5% YoY in constant currency rates）。 By brand:1） ELEMIS retained encouraging revenue growth at 47.3% YoY, driven by returns of wholesale and spa businesses, new market expansion （Russia and Japan） and acceleration of online sales in the US and the UK; 2） LeP increased 13.5% YoY and contributed 81% of total sales; 3） Limelife sales remained lackluster, declining 27% YoY due to a high base in 3QFY21 and sluggish recruitment of beauty guides. By region, 1） China continues to be the largest market with 23% YoY growth in sales, with group brands’ sales increasing 40% during the Double Eleven Shopping Festival; 2） US was rejuvenated with Black Friday sales returning to pre-COVID-19 levels despite reduced discounts and intensive competition; and 3） UK sales grew 30% YoY with recovery of retail sales after the lifting of COVID-19 lockdown restrictions.
　　Comments
　　Per management during the call, 1） a slowdown of traction in China could be unavoidable as the growth of Chinese premium beauty sector sales is slowing, but the group as a whole continues to outperform peers; 2） travel retail performance has been buoyed by domestic travel retail sales （i.e. Hainan duty-free business） but may not recover to pre-COVID-19 levels until FY23. Management reiterated the potential of global travel retail business - ELEMIS’ exclusive partnership with One Spa World in global cruise lines （which accounted for 18% of ELEMIS 2018 net sales at EUR25mn） is recovering with the resumption of cruise ships; 3） momentum of ELEMIS in China continued via exclusive distribution through Sephora China and customer acquisition through its flagship store, with a second domestic flagship store in Nanjing scheduled to be opened by January 2022; 4） management lifted FY22 guidance, with revenue growth at 15-16% YoY （previous mid-teens）； operating profit margin （OPM） of 15-16% （previous 15%）， and mid-term （FY24） guidance to be refreshed during FY22 annual updates.
　　Valuation and recommendation
　　We keep our FY22-23 revenue forecasts intact as management’s guidance lift is reflected in current figures; we lift our net profit forecasts 3% and 3% on higher OPM guidance. We maintain our OUTPERFORM rating and TP of HK$36 （23x FY23e P/E, offering 19% upside）。 The stock is trading at HK$30.3, implying 19x FY23e P/E. Risks: Slower-than-expected ELEMIS ramp up; COVID-19 worsening; forex fluctuations.