We envisage that Prada will deliver another solid quarter with 12% cFX Group sales growth to EUR1.3bn, thanks to comparable growth in the retail segment, which, in our view, will regain its momentum by lapping on a sequentially easier comp of the quarter. By region, Asia again is a major driver with cFX 20%+ growth supported by China’s recovering outbound tourism. The same should also benefit Japan, which simultaneously enjoys tailwind from a favourable currency and sets to deliver cFX 35% sales growth. Encouragingly, momentum in the US trend well quarter-to-quarter, from -6%/-2% in 2Q/3Q to almost flattish in 4Q. This is despite a volatile Europe, when we expect growth in 4Q to decelerate from that in 3Q. We continue to see steady domestic demand to support growth of the region, but warfare in the Middle East has led to a languishing inbound tourist flow that partially offsets the strength. Down the P&L, we look for a robust GPM at approximately 80%, along with a steadily declining opex ratio albeit a stagnant 8.6% A&P spend, considering Prada is committed to reinvest into branding. All these explain our 16% 2H net profit growth estimate. We are Buyer of Prada for its neat turnaround in which we see ample market share gain potential on its revamped Prada brand design and traction-gaining playful line MiuMiu.
　　2024 outlook. We look for 8% cFX group sales growth which consists of an average 5% ASP uptake from selective SKUs, 2% volume growth and 1% space expansion. The unweathered recovery in China outbound tourist along with an acceleration in MiuMiu growth will be integral catalysts.
　　MiuMiu. Undoubtedly the hottest brand in 2023 thanks to the success on hero products such as ballet flats and the Arcadie bag. Miumiu is correctly repositioned as a stand-alone brand with proprietary designer’s approach to the 20-something who have the desire to be avant-garde and twisted. We see every reason for MiuMiu to outperform in 2024 with ~40% growth when the brand remains hugely subscale within the luxury space.
　　Earnings revision. We moderately adjust our 2023E revenue for a slightly higher 4Q estimate. Our 2024-25E estimates are largely unchanged.
　　Valuation. Our revised TP is DCF-based. Along with roll-forward valuation, we update our model with 9.7% WACC (from 7.7%) which is based on 2.4% post-tax cost of debt (unchanged) and 10.8% cost of equity (from 8.5%). For the latter, we align our risk premium to 8.5% (from 5.0%), and beta to 0.9 (from 0.8) by referring to Bloomberg estimates. Our terminal growth is unchanged at 2%. Our TP implies 15.7x end-24E EV/EBIT, which is still slightly below the benchmark of~16.7x global peer average.