The company's recent situation
Prada Group (1913.HK) announced the 1Q24 revenue update: Group revenue increased +16% year over year at a fixed exchange rate and +12% year over year to 1.19 billion euros under financial disclosure, exceeding Bloomberg's consensus forecast of 1.17 billion euros and CCIC's expectations of 1.16 billion euros. The impact of currency headwinds was 500 basis points.
reviews
As the 1Q24 earnings season progressed, Prada Group achieved hard-won results, and is the only company with accelerated quarterly retail sales growth among all companies in the same industry that have announced financial reports so far. The success of the Prada brand and Miu Miu brand leather goods division further guarantees the continued expansion of the Group's profit margins. Our industry leader is still Prada.
The main points of the performance meeting are as follows: 1) In 2024, management aims to grow the Group's revenue faster than the industry while maintaining the trend of gradual profit margin expansion. Starting 2H24, it will be more obvious to see an increase in profit margins due to increased operating leverage, due to the concentration of marketing expenses on 1H24 throughout the year. 2) Despite strong year-over-year performance in April 2023 (April was the fastest growing month in 2023), the growth trend similar to 1Q24 has been maintained since April 2024. 3) In 1Q24, the Group's sales from the Chinese customer base achieved low double-digit year-on-year growth. The Japanese customer base grew strongly, the European customer base grew by medium units, the Korean customer base grew positive, and the North American customer base remained flat year over year. 4) Overseas consumption of Prada Group products by Chinese consumers is still 20-30% lower than the 2019 level, but the share of high-net-worth freelancers in the tourist composition has increased dramatically. 5) Looking at the Group as a whole, the growth in 1Q24 was mainly driven by sales volume, followed by price increases. The contribution of improving the product sales structure was limited. The Group's growth rate was slow at the beginning of the 1Q24 quarter. Business performance was good for the next 45 days, and business slowed down again after the Spring Festival. 6) Management expects only a slight expansion of retail stores in 2024, but by 2025, the number of MiuMiU stores will increase by 10-15%, and the number of Prada stores will increase by 5-10%.
7) Management believes that the Miu Miu brand's penetration rate in the North American market and leather category is low, and these areas are currently the source of Miu Miu's strong growth. 8) For the Group and the Prada brand, the leather category is the only category with a month-on-month acceleration. 9) E-commerce currently accounts for about 10% of the Group's revenue. 10) According to management, Prada eyewear currently ranks among the top global eyewear brands.
Profit forecasting and valuation
Based on the continued strong momentum of the Prada and Miu Miu brands, we raised our 2024 and 2025 revenue forecasts by 3% to €5.196 billion and €5.616 billion, and raised our 2024 and 2025 net profit forecasts 7% and 6% to €757 million and €867 million based on the faster growth rate in the leather goods sector with strong margins. Accordingly, we maintained our outperforming industry rating and raised our target price by 7.1% to HK$75, corresponding to 29.2 times our price-earnings ratio in 2024. The current share price corresponds to 24.4 times the 2024 price-earnings ratio. Our target price has 22.8% upside compared to the current stock price.
risks
Fashion risks; increased competition; geopolitical tension.