1H Group sales growth of 20.5% cFX slightly disappointed, considering 22.2% YoY growth in 1Q, when retail sales growth descended QoQ from 21.1% in 1Q to 14.7% in 2Q. Growth in Miu Miu remained eye-catching, with net sales in 2Q further accelerating at 57.3% YoY from 41.9% YoY in 1Q, thanks to the brand’s higher exposure in China and Asia. By region, Japan was the best performing region and grew 49.2% YoY, benefitting from a refreshed retail network and elevating inbound tourist flow. Growth in APAC was 25.3% YoY and that of Europe was 24.2% YoY. Within the former, the favourable base effect from HK/Macau/China was offset by temporary headwind in Seoul, while the latter exhibited robust growth despite tough comps. Sales in US was a drag as expected （as seen in peers） and down 1% YoY. 1H23 GPM was ahead of our expectation at 80.3%, and this pushed up EBIT margins to 22%, mitigating the impact of moderating top line growth to the bottom line. Overall, the results were a decent one, though not a straight beat, and we expect consensus to remain broadly unchanged.
　　Key takeaway from the earnings call
　　GPM trend. With diminishing cost savings from logistics cost, moderating ASP impact, the pace of GPM expansion has slowed down YoY when compared to that of HoH. Still, management is upbeat to maintain GPM at approximately 80% with tailwinds such as mix upgrade and scale efficiency. The priority of investing behind the brand for 2H23 does not mean management will be happy of going backward from what they achieved.
　　Prada vs Miu Miu. Each of these brands has its own growth trajectory and design language. The difference in geographical exposure explained the underlying growth difference （in which Miu Miu grew faster with higher Asia exposure）。 Subsequent to the rethinking, reengineering and repositioning of the brand, Miu Miu should see a 24-month performance speed-up.
　　Technical bottlenecks. No update on dual listings nor diluting shares. In regard to dual listings, the technical feasibility has been attained. The procedure is on agenda but not the current focus of the Group. The focus is currently on the strategic, organizational, and digital evolution of the group.
　　Valuation/Key risks. Our TP is DCF-based. In our model, we assume WACC of 7.7%, risk-free rate of 3.5%, risk premium of 5.0% and beta of 1.0.Our TP implies c.36.5x end-23E P/E.