The 3Q24 Group's retail revenue is predicted to increase 14% year over year under the fixed exchange rate. We expect Prada Group's 3Q24 retail revenue to increase 14% year over year under the fixed exchange rate (CER) and 13% year over year to 1.133 billion euros under the financial report, which is adversely affected by the 1 percentage point exchange rate. Combining the estimates for distribution (+15% YoY) and royalty (+35% YoY), we expect Prada Group's total revenue for 3Q24 to reach 1.26 billion euros, corresponding to a 15% year-on-year increase in CER and a 13% year-on-year increase in financial reporting. Unless otherwise specified, the following growth rates are all CER year-on-year growth rates.

We believe that the year-on-year growth rate of the 3Q24 Group retail revenue (+14% year over year) was mainly affected by the slowdown in growth in the Asian region, as the Greater China region was adversely affected by the weakening consumer confidence, while sales growth in the Japanese region slowed down due to the decline in product price attractiveness due to the appreciation of the yen.

Looking at 3Q24 retail revenue growth by region: We expect Japan (+45% YoY) to lead growth, followed by Europe (+14% YoY). The region's growth rate has slowed due to the Paris Olympics. We expect growth in the Americas (+9% YoY) and the Middle East and beyond (+25% YoY), while Asia excluding Japan (+5% YoY) may lag behind the overall growth rate. By brand, we expect the 3Q24 Miu Miu brand (+78% YoY) to continue its strong growth momentum, while the Prada brand (+2% YoY vs. 2Q24 +5%) may be affected by the slowdown in the industry's growth rate.

Key points of interest

We believe that the Prada Group is in an advantageous position in the luxury goods industry and is expected to outperform its peers in 2024, based on 1) the Prada brand's low-key design style is still popular; 2) the Miu Miu brand is gaining more market share globally, initially in Asia and then expanding to Europe and America; 3) The Group's strategy focuses on improving retail efficiency, which helps increase profit margins; 4) The Group has less exposure to Asia Pacific excluding Japan (1H24 accounts for 34% of Prada's retail revenue).

Profit forecasting and valuation

Based on the continued appeal of the Miu Miu brand and the resilience of the Prada brand, we raised our 2024 and 2025 revenues by 3% each to 5.326 billion euros and 5.776 billion euros. Based on increased operating leverage, we raised our 2024 and 2025 net profit forecasts by 8% to €0.816 billion and €938 million, respectively. We maintain our outperforming industry rating and target price of HK$75. We switched our valuation to 2025, and the target price corresponds to 24.0 times 2025 P/E. The current share price corresponds to 16.5 times the 2025 P/E. Our target price has 41.6% upside compared to the current stock price.

risks

Macroeconomic uncertainty; changes in fashion trends.