Maintain BUY and raised TP to HK$ 54.70, based on 55x FY22E P/E (roll over from 41x FY21E P/E), ~3.5 s.d. above 5 years avg. of 30x. We believe Prada’s impressive sales in Dec 2020 is a clear indication of rising popularity and should support its valuation. Therefore, its valuation at 47x FY22E P/E, ~2 s.d. above 5 years avg. of 30x, in our view, is still attractive (vs peers’ median of 30x).
- Strong recovery momentum in 4Q20E. Prada sales decline improved to L to MSD YoY in 4Q20, from HSD in 3Q20 and significantly better than 32% drop in 1H20. In fact, the luxury industry also performed well in 2H20E, evidenced by 5% YoY growth for Richemont in 4Q20, and 7%/ 9% sales drop for LVMH/ Kering in 3Q20. Noted that flattish sales growth was already achieved by Prada in Dec 2020, which is highly promising because: 1) the base in 4Q19 was rather high (~15% growth) and 2) Europe was still under pressure due to more lockdown measures.
- Despite drags in Europe and Japan. By region, retail sales in Europe and Japan were still falling (CMBI est. ~30% and ~20% YoY drop) in 2H20E due to the lack of tourists, while growth in other areas like China (~52%), Asia Pacific (CMBI est. ~25%), America (CMBI est. ~5%) and Middle East (CMBI est. ~15%) were helped by the noticeable wealth effect.
- A cautious target for FY21E. Previous guidance of EBIT breakeven in FY20E was successfully achieved (excluding EUR 37mn capital gains from property sales), which is meaningful that implied 2H20E EBIT margin returned to ~13%. However, mgmt. reiterated a cautious target for FY21E (similar to FY19 EBIT margin level, at ~ 9.5%), as Prada foresees its opex to rise due to more advertising and promotion activities, and recovery in Europe might not be as smooth as we expected. However, we are relatively more confident, thanks to: 1) better new product with high popularity of the new bag Cleo (comparable to Hobo at its launch), 2) ramp up of e-commerce (esp. Prada.com) and 3) operating leverage aided by rising store productivity (ASP increases through product mix and rising items per ticket).
- Maintain BUY and raised TP to HK$ 54.70. We adjusted FY20E/ 21E/ 22E EPS estimates by -55%/ -19%/ +11%, to factor in higher opex expenses in FY21E but better operating leverage in FY22E. As we expect Prada to gain more market shares in near future (unlike FY14 -18), we maintain BUY and lifted TP to HK$ 54.70, based on a 55x FY22E P/E, ~3.5 s.d. above 5 years average of 30x (from 41x FY21E P/E, given strong turnaround).
