The current situation of the company
On November 18, 2021, PRADA S.p.A. Group held its annual Capital Market Day in Milan, Italy, during which management provided 9M21 performance updates: at fixed exchange rates, 9M21 retail channel sales increased by 12% compared with 9M19 3Q21 retail channel sales increased by 18% compared with 3Q19. 3Q21 e-commerce sales have increased fivefold compared with 3Q19, and 9M21 e-commerce channels accounted for 7% of total retail revenue. Since 3Q21, thanks to better products, channels and regional structure, the group's gross profit margin has exceeded 76 per cent, compared with 71.9 per cent in 2019.
Comment
The management update group's medium-term goal: revenue is expected to grow to 4.5 billion euros (compared to 2019 revenue of 3.2 billion euros), EBIT profit margins are expected to reach 20% (compared to 2019 EBIT profit margins of 10%), retail channels are expected to account for more than 90% (compared with 83% of retail channels in 2019), and e-commerce channels are expected to contribute 15% of retail sales (compared with 2% of e-commerce channels in 2019).
The gross margin target remains unchanged at 78%.
In terms of overall strategy, management said: 1) Mr. Lorenzo Bertelli will succeed his father as CEO in about three years; 2) the growth trend in October and November 2021 is higher than 3Q21; in terms of production logistics, 3) 23 internal plants currently account for 40% of the assembly process, and the group aims to reach 60%. 4) PRADA S.p.A. 's newly built Tuscany logistics center will begin full operation in 2022. It can handle 15 million products a year and has the potential to issue 80% e-commerce orders within 24 hours. From the financial perspective, 5) the future capital expenditure is expected to be about 200-250 million euros / year. 6) the dividend policy will return to pre-epidemic levels (as a reference, 0.02 euros per share in 2019 and 0.06 euros per share in 2018); 7) the Group's net debt at the end of September is close to zero.
Valuation and suggestion
Our revenue forecasts for 2021 and 2022 will remain basically unchanged, but given 3Q21's strong gross profit margin and the high operating speed of 4Q21 so far, we have raised our net profit forecasts for 2021 and 2022 by 6 per cent and 19 per cent, respectively. We maintained our outperform industry rating and raised our target price by 8.3% to HK $65, corresponding to 45 times 2022 p / e. PRADA S.p.A. Group's current share price is 54.60 Hong Kong dollars, corresponding to 40 times 2022 earnings. Our target price has 19.0% upside over the current share price.
Risk
Operating income and EBIT profit margins may not reach the target within the expected time.