Maintain HOLD and trimmed TP to HK$ 22.04, based on 25x FY21E P/E (rolled over from 33x FY20E P/E). We believe Prada’s impressive full price sales growth in 2H19 could be a sign of turnaround, after series of reforms in the last few years. However, due to the sector de-rating induced by global virus outbreak. We think its valuation at 40x FY20E P/E is relatively rich (vs Peers’ average of 21x), and investors could wait for a better entry point.
- FY19 result inline but missed in dividends. FY19 net profit grew by 25% YoY to EUR 256mn, 1%/ 0% vs CMBI/ BBG’s est.. Sales in 2H19 beat by 1%/ 3% vs CMBI/ BBG est., but offset by higher than expected G&A expenses. Dividend was a miss as payout ratio was cut to 20%, which is equal to 0.9% yield at current price.
- Previous reforms started to yield decent full price sales growth. Prada had finally yield a 10% full price sales growth in 2H19 (first ever double digit growth in last 7 years, since 2H13). Mgmt. citied that robust growth had sustained into early Jan 2020. Noted that the improvement in 2H19 was seen across all regions (America > Europe > Asia Pacific > Japan), products (Ready to wear > Footwear > Leather goods) and brands (Prada > Miu Miu). We attributed this to its years of reforms : 1) digital marketing, 2) modernizing supply chain, 3) setting up new product series on top of classic lines, 4) launches of crossovers, like Adidas x Prada, and we expect more to come,
- However, sales growth is temporarily dragged by global virus outbreak. Unfortunately, retail sales growth, in our view, will experience a sharp fall in 1H20E (-13%/ -16% in 1Q20E/ 2Q20E), due to virus outbreak. Most stores were closed in China in Feb but now re-opened. However, same situation is now expecting in Europe and we see no definite timeline for re-openings. We believe the Company’s capex would be reduced to around EUR 120mn-150mn, from EUR 302mn in FY19, due to delay of 2021 resort fashion show (scheduled for May 2020 in Japan) and various store renovation projects.
- Maintain HOLD and adjust TP to HK$ 22.08. We adjusted FY20E/ 21E EPS estimates by -16.2%/+1.5%, to factor in 1) losses due to virus outbreak in EU/ US and 2) boost in sales growth thanks to greater brand popularity. We maintain HOLD but fine-tuned TP to HK$ 22.08, based on 25x FY21E P/E (rolled over from 33x FY20E P/E, as FY20E is distorted by temporary virus drag). The valuation is not particularly attractive because of lower yield and sector de-rating, compared to industry avg. at 22x FY20E P/E.
