The current situation of the company
O'Shudan reported revenue performance for FY2Q22 and FY1H22: FY2Q22 revenue rose 13.3% year-on-year to 388 million euros (11.4% year-on-year at fixed exchange rate); FY1H22 revenue rose 17.6% year-on-year to 725 million euros (18.6% year-on-year at fixed exchange rate).
Comment
We believe that the continued improvement in FY2Q22 is mainly due to the strong recovery of offline wholesale channels, particularly the Asian tourism retail business (up 39 per cent year-on-year at fixed exchange rates), mainly due to strong duty-free sales in Hainan. At the same time, online channels remain strong, with 11.6 per cent year-on-year growth on the high base of FY2Q21 (64.6 per cent year-on-year growth). We think this will help support a medium-term operating margin of 15%. Thanks to comprehensive marketing activities and continued exposure on major e-commerce platforms, China remains the largest single market (up 19 per cent year-on-year), with both online and offline sales recording good performance.
In terms of brand revenue, FY2Q22 Provence Oshudan increased by 10.9% compared with the same period last year, with a year-on-year increase of 42.6%, maintaining a strong growth trend. This is due to the rapid recovery of the spa spa business due to its new major markets and the end of the UK blockade at the end of July.
Management said in a conference call that the growth momentum of FY2Q22 continued in October, with Japan recovering from the restrictions imposed by the epidemic, the United States beginning to accelerate growth and Europe being affected by sporadic recurrent outbreaks. Management will keep its FY2022 operating revenue (low double-digit year-on-year growth) and operating margin guidance above 14% unchanged.
Valuation and suggestion
Given that current trends are in line with our forecasts, we keep the revenue and net profit forecasts for FY22 and FY23 unchanged. We maintain an outperform industry rating and target price of HK $34, corresponding to a price-to-earnings ratio of 25 times FY2023, which has 37 per cent upside over the current share price. The current share price is HK $24.9, corresponding to 17 times FY2023's price-to-earnings ratio.
Risk.
ELEMIS volume is lower than expected; COVID-19 epidemic intensifies; foreign exchange fluctuation