The current situation of the company
O'Shudan reported revenue performance for 4QFY22 (as of March 31, 2022): revenue rose 20.3% year-on-year to 435 million euros (up 16% at a fixed exchange rate). FY22 revenue rose 16.7 per cent year-on-year to 1.81 billion euros (14.6 per cent year-on-year at a fixed exchange rate), slightly exceeding our expectations.
Under the influence of epidemic control in some parts of China, ELEMIS grew 7.7% year-on-year at the fixed exchange rate in Provence. 2) benefiting from the rebound in wholesale and spa business and the acceleration of online sales in the United States and the UK, Limelife maintained a strong growth trend, growing by 41.6% year-on-year at the fixed exchange rate. 3) due to the loss of beauty consultants, Limelife sales remained depressed and fell 37% year-on-year at the fixed exchange rate.
From a regional point of view, 1) due to the closure of cities in some parts of China in March to cope with the spread of O'Micron, the largest market has temporarily deviated from the track of rapid growth (11% year-on-year growth at the fixed exchange rate); 2) the US market has recovered (41% year-on-year at the fixed exchange rate), benefiting from the merger of Sol de Janeiro since January. 3) the UK market increased by 36% year-on-year under the fixed exchange rate, mainly due to the sustained recovery of retail sales after the lifting of the epidemic control measures.
Comment
Management said in a conference call that 1) the follow-up performance of the Chinese market depends on local epidemic control measures, as the current strict city closure policy affects domestic logistics and warehouse transportation (especially in Shanghai and nearby cities). But management expects sales to rebound quickly after unsealing. 2) the performance of tourism retail business varies from place to place: Hainan duty-free business is temporarily subject to logistics problems, but management believes that the operating environment will show resilience when the operating environment returns to normal; the global tourism retail business has recovered significantly-ELEMIS's global cruise business continues to recover (accounting for 18% of ELEMIS's net sales in 2018, or about 25 million euros). 3) ELEMIS China business progress: the second brand flagship store will open in Nanjing in March, and Tmall flagship store will open in May to enhance the attractiveness of the brand, but Sephora's promotion has been delayed due to the epidemic; 4) the management has guided that FY23 operating revenue will maintain a year-on-year growth of about 15% at a fixed exchange rate, and more detailed performance guidelines will be updated in FY22 profit performance.
Profit forecast and valuation
Combined with the management performance guidance, we keep the FY22 revenue forecast and FY23's revenue and net profit forecast unchanged; at the same time, due to the high visibility of the interim performance guidance, we introduced the company's FY24 revenue and net profit forecast of 2.461 billion euros and 307 million euros, higher than the consensus forecast of 6% and 8%, respectively. We maintain an outperform industry rating and target price of HK $36, corresponding to a price-to-earnings ratio of 23 times FY23, which has 46 per cent upside over the current share price. The current share price is HK $24. 7, corresponding to a price-to-earnings ratio of 15. 5 times FY23.
Risk
The amount of ELEMIS is lower than expected; the epidemic situation of COVID-19 is aggravated; the risk of exchange rate fluctuation.