20210127-招银国际-普拉达-01913.HK-Flattish_sales_growth_achieved_in_Dec_2020_9页_1mb

Prada (1913 HK) Company Update Summary

Core Content Overview

This document provides an equity research update on Prada (1913 HK), highlighting its performance and valuation in the context of the global luxury goods sector. The report includes sales and earnings analysis, valuation metrics, and market position relative to peers.

Key Financial Highlights

Sales Growth

• Dec 2020: Flattish sales growth achieved, indicating a strong recovery.
• 4Q20E: Sales decline improved from HSD in 3Q20 to L to MSD YoY, significantly better than the 32% drop in 1H20.
• Global Recovery: The luxury industry showed resilience in 2H20E, with Richemont reporting 5% YoY growth in 4Q20, while LVMH and Kering had sales drops of 7% and 9% respectively in 3Q20.
• Regional Performance:
  • Europe and Japan: Still under pressure with YoY drops of ~30% and ~20%, respectively.
  • China (Greater China): Strong growth of ~52%.
  • Asia Pacific: ~25% growth.
  • America: ~5% growth.
  • Middle East: ~15% growth.

Earnings Performance

• FY20E: Net profit was negative at EUR -20 million.
• FY21E: Net profit of EUR 182 million.
• FY22E: Net profit of EUR 279 million.
• EPS:
  • FY20E: EUR -0.008
  • FY21E: EUR 0.071
  • FY22E: EUR 0.109
• Adjusted Net Profit:
  • FY20E: EUR -20 million
  • FY21E: EUR 182 million
  • FY22E: EUR 279 million
  • Adjusted Net Profit Growth: 53.4% for FY22E.

Valuation and Target Price

• Current Price: HK$47.00
• Target Price (TP): Raised to HK$54.70 from HK$32.82.
• Valuation: Based on a 55x FY22E P/E, which is ~3.5 s.d. above the 5-year average of 30x.
• P/E Comparison: Prada's P/E of 47.3x for FY22E is ~2 s.d. above the 5-year average of 30x, but still attractive compared to peers' median of 30x.

Earnings Revision and Assumptions

• Revenue Estimates: Revised down by -1.9% for FY20E, up by 1.4% for FY21E, and up by 9.3% for FY22E.
• EBIT Estimates:
  • FY20E: EUR 33 million
  • FY21E: EUR 321 million
  • FY22E: EUR 453 million
• Net Profit Estimates:
  • FY20E: EUR -20 million
  • FY21E: EUR 182 million
  • FY22E: EUR 279 million
• Key Assumptions:
  • Increased opex due to more advertising and promotion.
  • Recovery in Europe may not be as smooth as expected.
  • Positive factors include new product popularity (e.g., Cleo), e-commerce growth, and operating leverage from rising store productivity.

Market Position and Peer Comparison

• Shareholding Structure:
  • Prada Family: 79.98%
  • Invesco Ltd: 5.38%
  • Free Float: 14.64%
• Peer Valuation Comparison:
  • Prada's P/E is higher than the median of peers, but the report suggests it is still attractive.
  • Other peers include LVMH, Kering, Richemont, and Tiffany & Co, with varying P/E and P/B ratios.
  • Prada's P/B ratio is 4.0x for FY22E, compared to peers' median of 4.0x.

Strategic Factors

• New Product Popularity: The Cleo bag is noted for its high popularity, comparable to the Hobo at its launch.
• E-commerce: Prada.com is being ramped up, contributing to growth.
• Store Productivity: Operating leverage is supported by rising store productivity, with ASP increases due to product mix and rising items per ticket.

Financial Summary

Income Statement

• Revenue: EUR 3,142 million (FY18A), EUR 3,226 million (FY19A), EUR 2,488 million (FY20E), EUR 3,067 million (FY21E), EUR 3,437 million (FY22E).
• Gross Profit: EUR 2,263 million (FY18A), EUR 2,320 million (FY19A), EUR 1,809 million (FY20E), EUR 2,285 million (FY21E), EUR 2,567 million (FY22E).
• Operating Profit: EUR 307 million (FY18A), EUR 290 million (FY19A), EUR 33 million (FY20E), EUR 321 million (FY21E), EUR 453 million (FY22E).
• Net Profit: EUR 205 million (FY18A), EUR 256 million (FY19A), EUR -20 million (FY20E), EUR 182 million (FY21E), EUR 279 million (FY22E).

Cash Flow Summary

• Net Cash from Operating: EUR 365 million (FY18A), EUR 810 million (FY19A), EUR 868 million (FY20E), EUR 911 million (FY21E), EUR 975 million (FY22E).
• Capex & Investments: EUR -380 million (FY18A), EUR -286 million (FY19A), EUR -129 million (FY20E), EUR -162 million (FY21E), EUR -184 million (FY22E).
• Dividend Paid: EUR -198 million (FY18A), EUR -155 million (FY19A), EUR -51 million (FY20E), EUR -109 million (FY22E).

Conclusion

• Investment Recommendation: Maintain BUY.
• Reasoning: Prada's performance in Dec 2020 indicates a strong recovery, supported by new product launches, e-commerce growth, and operating leverage. Despite challenges in Europe and Japan, the company's growth in other regions and improved EBIT margins make it an attractive investment despite a cautious outlook for FY21E.
• Valuation: The raised target price reflects confidence in future performance and a higher P/E multiple compared to historical averages, suggesting potential for upside.