Prada will benefit from the industry's recovery in 2021. Although Europe and the US have partially announced a new round of blockades since mid-December 2020, we expect the global luxury industry to recover in 2021, mainly driven by progress in COVID-19 vaccine development and a strong recovery in the Chinese market. Prada is actively carrying out digital transformation. It has now landed on many Chinese media platforms, including Weibo, WeChat, Douyin, Xiaohongshu, etc., which will facilitate the recovery of the company's business in the Zhongyin market.

We forecast earnings per share of -0.026 euros in 2020; we raised our earnings per share forecasts for 2021 and 2022 by 8.6% and 13.2% to 0.093 euros and 0.109 euros respectively. We forecast the company's revenue to decline 23.1% year over year in 2020 and increase 25.1% year over year in 2021. In the future, the company will continue to advance its strategy of selling at regular prices. This would benefit the overall gross profit margin. We forecast a gradual increase in operating margins to 12.5% in 2021 and 13.0% in 2022.

The target price was raised to HK$44.20 but maintained a “neutral” rating. We have a positive view of Prada's business growth over the next few years, driven mainly by its successful business reforms. We raised our target price to reflect adjustments to earnings forecasts, better prospects for Prada's future growth, and higher industry valuations. Our new price targets are equivalent to 50.0 times and 42.9 times price-earnings ratios for 2021 and 2022, respectively. Prada's recent stock price already reflected most of the positive factors, so we maintain a “neutral” investment rating.