What's new
　　Prada Group released its 9M23 and 3Q23 update: 9M23 revenue was EUR3,344mn, +12% YoY reported and +17% YoY at constant exchange rates (CER), in line with CICC estimate of EUR3,384mn. All growth rates below are CER YoY unless specified.
　　In 9M23, retail net sales grew +17% CER YoY driven by both average price and full price volumes, of which the Prada brand increased 13% and the Miu Miu brand increased 49%. All regions except the US (down 1%) recorded double-digit growth led by Japan (+47%), Asia Pacific excl. Japan (+21%), followed by Europe (+17%), and the Middle East (+12%). Ready-to-wear (RTW, +32%) led the growth, followed by footwear (+16%) and leather goods (+8%). Wholesale net sales grew 6% and royalties grew +67%, driven by eyewear and fragrance in 9M23.
　　In 3Q23, retail net sales growth slowed to 10% from 1H23’s 21%, of which Asia Pacific excl. Japan slowed to 13% from 1H23’s 25%. Japan (3Q23 +42% vs. 1H23 +49%) remained strong backed by both local and tourism spending. The Prada brand’s growth slowed to 5% in 3Q23 from 18% in 1H23 due to strong comparison base, particularly in Europe, whereas the Miu Miu brand maintained blockbusting momentum (3Q23 +48% vs. 1H23 +50%).
　　The Prada Group net closed one directly operated store (DOS) in 3Q23 and net closed 10 DOS in 9M23 to reach 602 stores as of end-September 2023.
　　Comments
　　Management sounded satisfied during the earnings call. Key takeaways from the earnings call include:
　　1) Volume and price mix effect each contributed around 50% of growth YTD.
　　2) The Group hiked prices by 4-6% for both Miu Miu and Prada brands in 2023 with a similar increase expected in 2024.
　　3) Sales to the Chinese cluster sequentially accelerated vs. 3Q21 and grew YoY. North American cluster was slightly down YoY but +57% vs.　3Q21, European cluster still grew YoY in 3Q23. Majority of sales in Japan YTD is still contributed by local consumers.
　　4) Percentage of offshore Chinese spending more than doubled YoY in 9M23 but is still far below the pre-pandemic level.
　　5) Miu Miu’s margin has been improving and the gap is narrowing with Prada’s margin level. The average size of Miu Miu stores is currently smaller than Prada stores.
　　6) Cost to compete in the sector has increased in recent years, per management.
　　Financials and valuation
　　We keep our 2023 and 2024 earnings forecasts unchanged. The stock is trading at 18.9x 2024 P/E. We maintain an OUTPERFORM rating and our target price of HK$70 (implying 27.8x 2024 P/E), with 48.9% upside.
　　Risks
　　Fashion risks; intensified competition; geopolitical tensions.