20210730-招银国际-普拉达-01913.HK-Turnaround_confirmed_after_the_strong_beat_11页_2mb

Prada (1913 HK) Company Update Summary

Core Content

Prada has confirmed its long-awaited turnaround, with strong performance in the first half of 2021 (1H21) and accelerated retail sales growth in July 2021. The company's sales surged by 60% YoY to EUR 1.5bn, surpassing Bloomberg Bloomberg's estimate by 4%, and net profit reached EUR 97mn, beating the estimate by 25%. The improved results are attributed to a higher gross profit margin and operating leverage.

Main Points

• Strong Performance in 1H21: Prada's sales and net profit exceeded expectations, driven by better-than-expected wholesale sales and a higher gross profit margin.
• Retail Sales Growth: Retail sales growth accelerated to 12-13% in 2Q21, and further improved in July 2021. The growth was attributed to successful new product launches, effective omni-channel marketing, brand crossovers (e.g., Prada x Adidas, Miu Miu x Levi's), and a wealth effect.
• Margin Improvements: The gross profit margin reached 74.7%, and the EBIT margin is expected to reach 14.7% in 2H21E, with potential for further improvement in the mid-term.
• Earnings Revision: CMBIS has revised up FY21E/FY22E/FY23E net profit estimates by 30%/18%/17%, indicating faster sales growth and better operating leverage.
• Valuation: The current valuation of 44x FY22E P/E is considered highly attractive, even though it is higher than the peer average of 33x. The target price has been raised to HK$68.09.
• Share Performance: The stock has shown strong performance, with a 12-month return of 92.0% and a market cap of HK$139,072 million.

Key Information

• Shareholding Structure:

  • Prada Family: 79.98%
  • Invesco Ltd: 4.93%
  • Free Float: 15.09%

• Financial Highlights:

  • Revenue (EUR mn): FY19A: 3,226; FY20A: 2,423; FY21E: 3,218; FY22E: 3,669; FY23E: 4,015
  • Net Profit (EUR mn): FY19A: 256; FY20A: (54); FY21E: 254; FY22E: 347; FY23E: 431
  • EPS (EUR): FY19A: 0.100; FY20A: (0.021); FY21E: 0.099; FY22E: 0.136; FY23E: 0.168
  • P/E (x): FY19A: 62.2; FY20A: (281.6); FY21E: 60.1; FY22E: 43.9; FY23E: 35.4
  • P/B (x): FY19A: 5.4; FY20A: 5.4; FY21E: 5.0; FY22E: 4.6; FY23E: 4.4
  • Yield (%): FY19A: 0.3; FY20A: 0.6; FY21E: 1.0; FY22E: 1.8; FY23E: 2.3
  • ROE (%): FY19A: 8.6; FY20A: (1.9); FY21E: 8.3; FY22E: 10.6; FY23E: 12.4

• Earnings Revision:

  • Revenue: Revised up by 6.2% in FY21E, 8.1% in FY22E, and 10.1% in FY23E
  • Gross Profit: Revised up by 6.5% in FY21E, 8.1% in FY22E, and 10.1% in FY23E
  • EBIT: Revised up by 20.2% in FY21E, 13.5% in FY22E, and 14.5% in FY23E
  • Net Profit: Revised up by 30.0% in FY21E, 17.8% in FY22E, and 17.4% in FY23E
  • Diluted EPS: Revised up by 30.0% in FY21E, 17.8% in FY22E, and 17.4% in FY23E

• Performance Comparison:

  • Prada's YoY retail sales growth for 2Q21 was ~105%, outperforming Kering (98%) and LVMH (84%)
  • Prada's EBIT margin is expected to reach 14.7% in 2H21E, with potential to reach 20% or 25%+ in the mid-term

• Peer Valuation:

  • P/E (x): Prada (43.9) vs peers (avg: 35.0)
  • P/B (x): Prada (4.6) vs peers (avg: 4.7)
  • ROE (%): Prada (10.6) vs peers (avg: 2.2)
  • Yield (%): Prada (1.8) vs peers (avg: 1.2)

Summary of Key Figures

Conclusion

Prada's performance has been robust, confirming a turnaround with strong sales and margin improvements. The company is expected to continue outperforming the industry, with increasing brand visibility and effective marketing strategies contributing to its success. The current valuation is considered highly attractive, and the target price has been raised to HK$68.09. The financial outlook is positive, with clear signs of growth and profitability.