Morgan Stanley: Cuts PRADA (01913) sales forecast, lowers target price to HK$40, expects Miu Miu to face challenges.

Morgan Stanley released a research report stating that based on weakening luxury consumption data from China and the US, it has lowered its third-quarter forecasts for PRADA (01913), believing that brands under the PRADA Group cannot remain unaffected; it has cut the target price for PRADA from HK$42 to HK$40, maintaining an "Equal-weight" rating. The bank now forecasts that Prada brand retail sales will be flat at constant exchange rates, while Miu Miu will decline 3%, with the group's overall third-quarter sales falling 0.5% year-on-year. The bank has also lowered its fourth-quarter forecasts, as it sees no reason for a significant rebound in demand, and has cut forecasts for later years, reflecting a more cautious view on medium-term growth in the luxury goods industry. The bank noted that Miu Miu, as a key variable for investing in PRADA, has investors hoping to find evidence of Miu Miu transitioning from high-speed growth to sustained growth, but the brand is now facing a severe environment, as its exposure to Chinese customers is higher than the industry average, its exposure to US customers is far lower, while its exposure to Middle Eastern customers is relatively high, and it faces high base challenges. The bank expects Miu Miu's third-quarter retail sales to decline 3% at constant exchange rates, implying a double-digit decline in like-for-like (LFL) sales, which will intensify market concerns that Miu Miu may experience a substantial sales correction after rapid growth.