Market Pressure Remains, Reiterate Neutral

Transcription

1 : Prada (01913 HK) Terry Hong 洪学宇公司报告 : 普拉达 (01913 HK) hongxueyu@gtjas.com Market Pressure Remains, Reiterate Neutral 市场压力仍在持续, 重申 中性 GTJA Research 国泰君安研究 Increasing presence in social media and e-commerce business. Prada has started to interact closely with Chinese customers through Sina Weibo and WeChat. The Company will also roll out its e-commerce platform in all major markets over the next two years, which we believe will create synergy between online and offline channels. The Company will focus on improving SSSG instead of network expansion in the next few years. Net profit shrank by 24.7% in 1HFY17. Prada's revenue declined by 14.8% YoY to EUR1.55 billion due to a 17.8% YoY decline in sales from the retail channel. Asia Pacific, which accounted for more than one third of the Company s sales, recorded a 22. YoY decline, the biggest drop of all regions. The Company cut operating expenses by 12.1% YoY in 1HFY17, while operating expenses as a percentage of revenue still increased by 1.8 ppt YoY to 58.4%. Net margin dropped by 1.2 ppt YoY to 9.1%. Reiterate Neutral with a TP of HK$ Global luxury industry is going through structural reform, and we think the business environment for Prada will remain tough for the next few years. We forecast FY17/FY18/FY19 EPS to change by -10.7%/10.5%/11. YoY, respectively. The TP represents 27.7x, 25.0x and 22.6x FY17, FY18 and FY19 PER respectively. Risks: 1) slowdown in the global tourism industry, 2) weak demand in the China market, 3) competition from affordable luxury brands, 4) disappointing sales of new products and 5) unexpected fluctuations in foreign exchange rates. Rating: Neutral Maintained 评级 : 中性 ( 维持 ) 6-18m TP 目标价 : HK$26.40 Share price 股价 : Stock performance 股价表现 HK$ % of return (5.0) (10.0) (15.0) (20.0) (25.0) Dec-15 Feb-16 Apr-16 Jul-16 Sep-16 Dec-16 HSI Index Prada 社交媒体宣传和电商业务不断增强 普拉达开始通过新浪微博和微信与中国客户紧密互动 公司也将在未来两年内在主要市场中推出其电商平台, 我们认为这将在线上和线下渠道之间产生协同效应 在接下来几年中公司将重点改善同店销售增长, 而非继续扩大店铺规模 2017 财年上半年净利收缩 24.7% 普拉达营收同比下跌 14.8% 至 15.5 亿欧元, 由于零售渠道收入同比下跌 17.8% 占公司总收入超过三分之一的亚太区域录得了 22. 的同比下滑, 是下滑最严重的区域 公司 2017 年上半年同比缩减经营费用 12.1%, 但经营费用占总收入比重仍然同比上涨了 1.8 个百分点至 58.4% 净利率同比下降 1.2 个百分点至 9.1% 重申 中性 评级并设定目标价至 港元 全球奢侈品行业正在经历一次结构性转型, 我们认为在接下来几年中普拉达的业务环境仍将比较艰苦 我们预测 2017 财年 /2018 财年 /2019 财年每股盈利分别同比变化 -10.7%/10.5%/11. 目标价分别相当于 27.7 倍 25.0 倍和 22.6 倍 2017 财年 2018 财年和 2019 财年市盈率 风险 :1) 全球旅游行业放缓 ;2) 中国市场需求疲弱 ;3) 来自轻奢品牌的竞争 ;4) 新产品销售令人失望 ;5) 外汇汇率的超预期波动 Change in Share Price 股价变动 Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % Avg. share price(hk$) 平均股价 ( 港元 ) 1 M 1 个月 3 M 3 个月 1 Y 1 年 Year End 年结 Turnover 收入 Net Profit 股东净利 EPS 每股净利 EPS 每股净利变动 PER 市盈率 BPS 每股净资产 PBR 市净率 DPS 每股股息 Yield 股息率 ROE 净资产收益率 1/31 (EUR m) (EUR m) (EUR) ( %) (x) (EUR) (x) (EUR) (%) (%) FY15A 3, (28.2) FY16A 3, (26.6) FY17F 3, (10.7) FY18F 3, FY19F 3, Shares in issue (m) 总股数 (m) 2,558.8 Major shareholder 大股东 Prada Holding S.P.A. 80. Market cap. (HK$ m) 市值 (HK$ m) 69,216.2 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 1,187.8 FY17 Net gearing (%) 17 财年净负债 / 股东资金 (%) Net Cash 52 Weeks high/low (HK$) 52 周高 / 低 / FY17 Est. NAV (HK$) FY17 每股估值 ( 港元 ) 29.4 See the last page for disclaimer Page 1 of 7

2 Focusing on the optimisation of networks to improve SSSG. Prada ( the Company ) has changed its retail channel strategy to optimise store portfolios and improve shopping experience instead of opening more stores. During 1HFY17 there was a net opening of 4 retail stores and a net closing of 5 wholesale stores, resulting in a total number of 653 stores as at July With new store concepts and better services, we expect SSSG to gradually improve in the medium term from the approximate -16% growth in 1HFY17. Besides, the more cautious expansion of networks will lead to lower capex in the next few years, which will benefit the Company's cash flow. Figure-1: Prada s Stores Breakdown by Brand FY13A FY14A FY15A FY16A 1HFY17 Prada Miu Miu Church's Car shoe Marchesi Figure-2: Prada s Stores Breakdown by Channel FY13A FY14A FY15A FY16A 1HFY17 Owned Franchises Increasing presence in social media and e-commerce business. In FY17 the Company started to interact closely with Chinese customers through Sina Weibo and WeChat. We believe that this is a good strategy since sales in China contributed around to the Company s total revenue. The Company is also focusing on its e-commerce business. The 1.5% YoY increase in wholesale business in 1HFY17 was essentially attributable to new partnerships forged with leading electronic retailers. The Company will roll out its e-commerce platform in all major markets over the next two years. It has become an inevitable trend that e-commerce business will play an important role in the development of all luxury brands because it offers an alternative channel for customers to discover and compare products efficiently. Some offline stores even provide free Wi-Fi services for customers to browse products online. Prada has finally launched its e-commerce business and we believe that the synergy between online and offline channels will improve the Company's overall performance in the long run. Business contraction continued in 1HFY17. The Company continued to record frustrating results in 1HFY17, with revenue declining by 14.8% YoY to EUR1.55 billion. The decrease was entirely attributable to sales decline in the retail channel, (-17.8% YoY). The Asia Pacific market, which accounted for more than one third of the Company s sales, recorded a 22. YoY decline, the biggest drop of all regions. General economic slowdown and the anti-extravagance campaign in China continued to impose pressure on the Company s sales. Revenue from Prada and Miu Miu branded products dropped by 15.6% and 15.2% YoY, and accounted for 80.7% and 16.3% of total revenue, respectively. Among the product categories, leather goods accounted for the largest part (60.8%) of total retail sales, but recorded the worst performance with a 22.1% YoY decline. Gross margin declined by 0.5 ppt YoY to 72.2%. The Company cut operating expenses by 12.1% YoY in 1HFY17, while operating expenses as a percentage of revenue still increased by 1.8 ppt YoY to 58.4% due to the big drop in revenue. Net profit decreased by 24.7% YoY to EUR142 million, and net margin dropped by 1.2 ppt YoY to 9.1%. See the last page for disclaimer Page 2 of 7

3 Table-1: Prada s 1HFY17 results EUR mn 1HFY16 1HFY17 YoY Net revenues 1,824 1,554 (14.8%) Retail 1,552 1,277 (17.8%) Wholesale % Royalties % Cost of goods sold (499) (432) (13.3%) Gross profit 1,326 1,122 (15.4%) Operating expenses (1,033) (908) (12.1%) Profit from operations (27.1%) Interest and other finance expense (9) (7) (25.5%) Dividend from investments 2 1 (64.3%) Profit before taxation (27.4%) Income tax (94) (62) (33.9%) Profit for the year (24.2%) Non-controlling interests % Net profit (24.7%) Basic EPS (EUR) (24.7%) Gross margin 72.7% 72.2% (0.5) ppt Operating expenses as % of turnover 56.6% 58.4% 1.8 ppt Operating margin 16.1% 13.8% (2.3) ppt Effective tax rate 32.9% 30. (3.0) ppt Net margin 10.3% 9.1% (1.2) ppt Source: the Company. Figure-3: Prada s Sales Breakdown by Brand % 16.1% % 16.3% 16.3% % 80.9% 82.6% 82.7% 81.1% 80.7% 1 1HFY12 1HFY13 1HFY14 1HFY15 1HFY16 1HFY17 Prada Miu Miu Church's Car shoe Other Figure-4: Prada s Sales Breakdown by Product Category % 20.7% 16.5% 18.2% 17.6% 19.4% % 61.9% 67.7% 64.2% 64.2% 60.8% % 14.6% 15.9% % 1HFY12 1HFY13 1HFY14 1HFY15 1HFY16 1HFY17 Clothing Leather goods Footwear Other Figure-5: Prada s Sales by geographical area in 1HFY17 0.1% 14.9% 34.1% 4.1% 12.4% 21.2% 13.2% Italy Europe Americas Asia Pacific Japan Middle East Other countries Figure-6: Prada s Sales by geographical area 4 35% 25% 15% 1 5% FY15A 1HFY16 FY16A 1HFY17 Italy Europe Americas Asia Pacific Japan Middle East See the last page for disclaimer Page 3 of 7

4 Figure-7: Prada s Operating Expenses Figure-8: Prada s Profitability 1,200 1, % 13.7% 9.3% 1, % 1HFY13 1HFY14 1HFY15 1HFY16 1HFY17 Operating expenses YoY 35% 25% 15% 1 5% -5% -1-15% % 73.4% 71.8% 72.7% 72.2% % 26.5% 21.3% 16.1% 13.8% % 17.8% % 9.1% 1HFY13 1HFY14 1HFY15 1HFY16 1HFY17 Gross margin Operating margin Net margin The global luxury goods industry is going through structural reform. The luxury goods industry has grown very fast over the past decade, the customer base has almost tripled. However, the expansion of physical networks have come near to a level of saturation, which forces luxury goods companies to develop their business by improving SSSG. Luxury brands have to improve the design, quality and creativity of their products, and utilize multiple marketing channels like social media, e-commerce platforms and mobile applications. Moreover, customer preferences have also changed. Affordable luxury brands have become more and more popular as growing middle class groups care more about the fashion, design and value-to-price ratio of products, which leads to partial competition with mid- to high-end luxury brands like LV and Prada. Prada is cutting costs to maintain profitability, but we believe that the right solution is to enhance the design and innovation of its products to strengthen brand loyalty. We believe that it will take another 2-3 years for Prada to address the reform, in the meantime, the Company's business growth may remain under pressure. We forecast FY17/FY18/FY19 EPS to change by -10.7%/10.5%/11. YoY, respectively, based on our new assumptions. We forecast FY17 revenue to decline by 8.5% YoY mainly due to the weak performance of retail business. However, we expect revenue growth to return positive in FY18 and FY19, which will be attributable to the Company's efforts to improve SSSG. Besides, we expect e-commerce business to make a bigger revenue contribution in FY18 and FY19. Cost control is expected to continue in the next few years, accompanied by a tightened network expansion pipeline. Therefore, we expect improvements in the Company's profitability in FY18 and FY19. We forecast FY17/FY18/FY19 net margin to be 9.1%/9.8%/10.5%, respectively. Table-2: Prada's Key Forecasts Forecasts YoY RMB mn FY17F FY18F FY19F FY17F FY18F FY19F Total revenue 3,245 3,344 3,451 (8.5%) 3.1% 3.2% Retail 2,748 2,841 2,942 (10.2%) 3.4% 3.6% Wholesale % 1.3% 1.2% Royalties Gross profit 2,359 2,435 2,513 (8.1%) 3.2% 3.2% Operating profit (10.6%) % Net profit (10.7%) 10.5% 11. Basic EPS (EUR) (10.7%) 10.5% 11. Gross profit margin 72.7% 72.8% 72.8% 0.3 ppt 0.1 ppt (0.0) ppt Operating expense of total turnover 58.8% % 0.6 ppt (0.8) ppt (0.9) ppt Operating profit margin 13.9% 14.8% 15.7% (0.3) ppt 0.9 ppt 0.9 ppt Effective tax rate ppt 0.0 ppt 0.0 ppt Net profit margin 9.1% 9.8% 10.5% (0.2) ppt 0.7 ppt 0.7 ppt See the last page for disclaimer Page 4 of 7

5 Reiterate Neutral with a TP of HK$ The decline in Prada's business is expected to be alleviated in FY18, while the old-fashioned designs of Prada products, the relatively high price level as well as the slow pace in the launch of new products remain as problems to be solved before a full rebound of business will be seen. Currently, the Company is trading at 25.7x FY18 PER, which is a 34. premium to the industry average of 19.1x and a 23.6% premium to its historical average of 20.3x. We believe the Company's current valuation basically reflects its situation. We set our TP at HK$26.40, which represents 27.7x, 25.0x and 22.6x FY17, FY18 and FY19 PER respectively. The TP reflects a 2.4% downside potential, and therefore we reiterate the Company s Neutral rating. Risks: 1) slowdown in the global tourism industry, 2) weak demand in the China market, 3) competition from affordable luxury brands, 4) disappointing sales of the Company's new products and 5) unexpected fluctuations in foreign exchange rates. Figure-9: Prada s P/E Ratio (Next Annual) SD: 22.4x Average: 20.3x SD: 18.1x Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 PER Average 1SD -1SD Figure-10: Prada s P/B Ratio (Current Annual) SD: 6.1x Average: 4.4x SD: 2.6x 1.0 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 PB Average 1SD -1SD Table-3: Peers Comparison Company Market Cap PE(x) PB(x) ROE(%) D/Y(%) EV/ EBITDA(x) Gross Margin(%) Operating Margin(%) Stock Code Currency Last price HK$ mn 15A 16F 17F 18F 15A 16F 17F 18F 16F 16F 16F 16F 16F PRADA* 1913 HK HKD , LVMH MC FP EUR , CHRISTIAN DIOR CDI FP EUR , KERING KER FP EUR , MICHAEL KORS* KORS US USD , BURBERRY BRBY LN GBp 1, , COACH* COH US USD , HUGO BOSS BOSS GY EUR , SALVATORE FERRAGAMO SFER IM EUR , TOD'S TOD IM EUR , Simple Average Weighted Average * Note: The financial year end dates of these companies are not 31 st December. For easier comparison with peers, 15A means FY16A and 16F means FY17F, and so on. See the last page for disclaimer Page 5 of 7

6 Financial Statements and Ratios Income Statement Balance Sheet Year end Jan (EUR mn) FY15A FY16A FY17F FY18F FY19F As at Jan 31 (EUR mn) FY15A FY16A FY17F FY18F FY19F Turnover 3,552 3,548 3,245 3,344 3,451 Cash and cash equivalents Cost of sales (1,001) (980) (886) (909) (938) Trade receivables Gross profit 2,551 2,568 2,359 2,435 2,513 Inventories Others Operating expenses (1,849) (2,065) (1,910) (1,941) (1,970) Total current assets 1,900 1,888 1,721 1,754 1,823 Profit from operation Property, plant and equipment 1,474 1,518 1,584 1,625 1,664 Interest and other financial income/(expenses) (34) (30) (26) (27) (23) Intangible assets Dividend from investments Deferred tax assets Profit before taxes Others Total non-current assets 2,839 2,868 2,968 3,026 3,092 Taxation (208) (142) (127) (141) (156) Minority interest (8) (2) (2) (2) (3) Bank overdrafts and short-term loans Net profit Trade payables Current tax liabilities and others EPS (EUR) Total current liabilities 1, YoY (28.2%) (26.6%) (10.7%) 10.5% 11. Long-term financial payables DPS (EUR) Post-employment benefits Provision for contingencies and commitments Others Total non-current liabilities Minority interest Shareholders' equity 3,001 3,080 3,090 3,240 3,396 BPS (EUR) Cash Flow Statement Financial Ratios Year end Jan (EUR mn) FY15A FY16A FY17F FY18F FY19F FY15A FY16A FY17F FY18F FY19F Total income before taxation Revenue growth (%) (1.0) (0.1) (8.5) Depreciation and amortization Operating profit growth (%) (25.3) (28.3) (10.6) Non-monetary financial (income) expenses Net profit growth (%) (28.2) (26.6) (10.7) Change in working capital (117) (128) 61 (17) (20) Others (55) (46) (38) (57) (35) Gross margin (%) Taxes paid (295) (245) (127) (141) (156) Operating margin (%) Operating cash flow Net profit margin (%) Purchases of PP&E and intangible assets (362) (394) (346) (337) (338) ROA (%) Other investing activities (7) 2 (7) 3 (2) ROE (%) Investing cash flow (369) (392) (352) (334) (340) Inventory turnover days Dividends paid (281) (281) (281) (179) (205) Account receivable days Other financing activities (83) (72) (62) Account payable days Financing cash flow (57) (10) (365) (251) (267) Cash conversion cycle Cash at beginning of year Current ratio (x) Change in cash and cash equivalent 58 (33) (86) (3) 30 Payout ratio (%) Foreign exchange Net Net Net Net Net 83 5 (4) 2 (1) Net gearing (%) difference cash cash cash cash cash Cash balance at year end See the last page for disclaimer Page 6 of 7

7 Company Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Buy Relative Performance >15%; or the fundamental outlook of the company or sector is favorable. Accumulate Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. Sector Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform Relative Performance >5%; or the fundamental outlook of the sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for SMI Holdings Group Limited (00198 HK), Guotai Junan International Holdings Limited (01788 HK), Binhai Investment Company Limited (02886 HK) and Link Holdings Limited (08237 HK), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) Fax: (852) Website: See the last page for disclaimer Page 7 of 7