Maintain BUY and raised TP to HK$ 57.80, based on unchanged 55x FY22E P/E, ~3.5 s.d. above 5 years avg. of 30x. We believe Prada’s impressive sales growth momentum in YTD 2021 and the upbeat margin guidance could support investors’ confidence and its valuation. Therefore, its current valuation of 46x FY22E P/E, in our view, is still attractive (despite a peers’ median of 26x).
- FY20 net losses higher but 2H20 EBIT was decent. Prada reported net losses of EUR 54mn in FY20, higher than CMBI/ BBG est. of EUR 20/ 43mn net losses. Even though net profit of EUR 126mn in 2H20 was 21% below our est. due to a 4% miss in sales, greater-than-expected finance costs and tax, we believe the stronger-than-expected EBIT margin at 14.5% in 2H20E (vs CMBI est. of 12.8%) was more significant and profound. Also, the proposed dividend per share of EUR 0.035, despite losses, is a positive sign.
- Retail sales in YTD 2021 recovered to 2019 level. Retail sales decline already improved to LSD in 4Q20 (vs HSD in 3Q20). And this improving trend and momentum in Dec 2020, as stated by management, has sustained into YTD 2021. Hence a MSD growth vs 2020 was registered (and flattish vs 2019)., which is encouraging given the high base (~20% growth in Jan 2020) and large number of closed stores (~130 or ~20% of total).
- An upbeat GP margin and a relatively more positive EBIT margin guidance. Management also announced an upbeat target for GP margin, foreseeing not only a 74.5% in FY21E, but also a 78% by FY22E (in 18-24 months). This, in our view, is supported by rising brand heat, popularity and engagement surged on Instagram, Weibo, Google trends, and also the Prada.com. Therefore, amid greater consumer demand, ASP can be raised through improved product offerings and rising items per ticket. Moreover, despite uncertainties on how tourism is going to recover in FY21E, thanks to better local customers, Chinese and e-commerce demand, management expects the business condition to resume to somewhere between FY19 and 2H20 (was previously expecting a FY19 level). Hence we forecast a 11.5% EBIT margin in FY21E (vs 9.5% in FY19 and 14.5% in 2H20).
- Maintain BUY and raised TP to HK$ 57.80. We revised up FY21E/ 22E EPS estimates by 7%/ 6%, to factor in higher GP margin and better operating leverage. As we expect Prada to outperform industry onwards (unlike FY14 -18), we maintain BUY and lifted TP to HK$ 57.80, based on unchanged 55x FY22E P/E, ~3.5 s.d. above 5 years average of 30x.
