Maintain BUY and raised TP to HK$ 68.09, based on 55x FY22E P/E (down from 60x), ~1.6 s.d. above 5 years avg. of 36x. This remarkable beat should be more than able to confirm Prada’s long awaited turnaround, and we expect the mid-teens retail sales growth (vs 2019 level and accelerated vs 2Q21) to induce further margin improvement. Therefore, its current valuation of 44x FY22E P/E, in our view, is still highly attractive (despite a peers’ average of 33x).
An all-round beat in 1H21. Prada’s 1H21 sales surged by 60% YoY to EUR 1.5bn, 4% above BBG est., due to better-than-expected wholesale sales. It also recorded net profit of EUR 97mn in 1H21, beating BBG est. by 25%, thanks to a higher-than-expected GP margin and operating leverage. We are highly impressed as retail sales already surpassed 1H19 level despite temporary closure of ~17% of total stores, as well as jump in GP margin (driven by ASP hike, product and channel mix), reflecting rising brand popularity.
Retail sales growth further accelerated in Jul 2021. Highlighted by the management, retail sales growth not only improved to 12-13% in 2Q21 (vs LSD in 1Q21), but also further accelerated in Jul 2021, aided by: 1) excellent new products reception in Greater China and US, 2) successful omni- channel marketing through digital fashion shows and various pop up stores, 3) effective brand crossovers (Prada x Adidas, Miu Miu x Levi’s), and 4) meaningful wealth effect, etc. According to our est. Prada’s YoY retail sales growth for 2Q21 was ~105% (beating CMBI est. of 90%) and outperforming Kering’s 98% and LVMH’s 84%, indicating gains in market shares.
EBIT margin target maintained but we are more positive, and it is still early in the brand cycle. The Company targets a 75% GP margin (on track to reach its mid-term target of 78%) and a 11%+ EBIT margin in 2H21E (previous guiding somewhere between FY19’s 9.5% and 2H20’s 14.5%), but we are confidently forecasting a 14.7% in 2H21E, supported by: 1) robust effective sales per store in China & US and 2) easing of operating deleverage once stores in EU re-open. As the brand elevation continues, EBIT margin to reach 20% or 25%+ is not impossible, in mid-term horizon.
Maintain BUY and raised TP to HK$ 68.09. We revised up FY21E/ 22E/ 23E NP estimates by 30%/ 18%/ 17% to factor in faster sales and better operating leverage. As we expect Prada continues to outperform industry (unlike FY14 -18), we maintain BUY and lifted TP to HK$ 68.09, based on 55x FY22E P/E (down from 60x), ~1.6 s.d. above 5 years average of 36x