3Q revenue of EUR1.1bn grew 3.4%/10% on a reported/cFX basis, slightly ahead of us but in line our expectation of a normalised quarter. The trend was also comparable to its global luxury peers, such as LVMH, who reported a 9% cFX Fashion and Leader sales growth. During the call, management commented that 1) October sales remained solid with momentum extending from 3Q; 2) the strong Miu Miu brand growth (+48%) offset the normalising Prada brand growth (+5%); and 3) comparable price initiatives (ASP +4-6%) will be carried on in 2024E. In our view, Prada remains a growing brand and the new management team is capable of driving further upside to financials. BUY.
Regional performance. In 3Q, Japan showed the highest YoY growth at 26%, with contributions from both Chinese tourists and local customers.
　　Management noted that the Chinese cluster saw substantial growth in 3Q, driven by travellers. While this segment is relatively small, so any change in the trend would not drive an impactful change. The US saw an 8% YoY decline, while the Middle East slightly decreased in 3Q and is facing uncertainty due to geopolitical tensions in 4Q.
Brands’ performance. Prada's 3Q performance remained consistent with previous quarters, driven by higher ASPs and strong full-price sales growth.
　　Miu Miu's profitability is on an upward trajectory, narrowing the gap with Prada. Both Miu Miu and Prada underwent a 4-6% price increase in 2023, and there will be another similar hike for 2024. Despite uncertainties in macro environment, Prada commented that it will continue to invest in the brands to achieve sales growth exceeding market average.
New initiatives. Royalties revenue increased through licensing and cross- brand collaborations. While this upward trajectory is likely to persist, Prada has no plans to extend licensing to other categories. Going forward, segment revenue is likely to see continuous improvement and be more consistent, given the business is still at its early stage of development.
　　Additionally, the introduction of human-made stone jewellery represents a milestone that signifies Prada’s expansion into the fine jewellery market. n Earnings revision/valuation. We leave our forecasts unchanged, given the in-line revenue print, and limited outlook discussion. Our TP is DCF- based. In our model, we assume WACC of 7.7% and risk-free rate of 3.5%.
　　Our TP implies 19.7x end-23E EV/EBIT, which largely benchmarks to ~19.0x global peer average.