China / Hong Kong Company Focus

Prada
Bloomberg: 1913 HK Equity

Reuters: 1913.HK

DBS Group Research . Equity

16 March 2012

BUY HK$47.80 HSI : 21,354

(Initiate coverage) Price Target : 12-Month HK$ 57.00 Potential Catalyst: New market penetrations DBSV vs Consensus: Our FY14F EPS is 8% above market as we believe demand for soft luxury goods could continue to outperform Analyst KOK Chiew Sia +852 2820 4918 cs_kok@hk.dbsvickers.com Mavis Hui +852 2863 8879 mavis_hui@hk.dbsvickers.com

Fashion powerhouse
Premium status high fashion brand with good margin visibility Right market positioning and faster retail network growth to capitalise on the booming luxury market Initiating coverage with BUY for 19% upside to HK$57.00 TP

Price Relative
HK$ Relative Index 50.9 45.9 40.9 35.9 125 30.9 25.9 Jun-11 105 85 Sep-11 Dec-11

205 185 165 145

Premium branding with good margin visibility. The luxury goods industry has strong pricing power and good margin outlook as their selling prices normally sustain an uptrend to maintain prestige status. For Prada, better profitability could be achieved through (a) Expanding retail sales channels via Directly-Owned Stores (DOS) that offer higher margins, (b) Alternative material sourcing and rising economies of scale, (c) Adjustment in mark-down policy to reduce discounted items during sales period. Besides, the groups strong pricing power allows store-wide price hikes, usually at low single-digit every year, on top of occasional price lifts by a larger magnitude for new and flash collections. Leveraging on booming luxury spending. Prada is a proxy to the booming luxury goods market in the far eastern countries, especially Greater China. Demand will come from: (a) growing middle class population, (b) increased buying power due to RMB appreciation, (c) looming demand for gift purchases, and (d) rising demand from younger consumers aged 18-35. To capture growth, Prada plans to add 240 new DOS in FY12-14F to hasten penetration and market coverage, while continues to focus on growing its more successful core brand PRADA and younger brand MIU MIU. We forecast FY12F-14F earnings CAGR of 28.7%, on 23% revenue CAGR. The key growth market will be Asia Pacific-ex Japan (+31% revenue CAGR to EUR1.5bn), which could be the largest revenue contributor (c.40%) to Prada by FY14F. Initiate with BUY and HK$57.00 TP. Pradas valuation is attractive relative to some recently listed peers, i.e. Salvatore Ferragamo (SFER IM) and Michael Kors (KORS US). Its bigger market cap, better earnings quality and equally attractive growth prospects justify a premium valuation, in our view. In addition, HKD-denominated investment may attract investors with EURO funds given an expectation of a stronger HKD vs EUR (+13% in 2012). Pegging peers average of 27x PE multiple on Pradas CY12F EPS of HK$2.11, we arrived at HK$57.00 TP. Initiating coverage with BUY.
At A Glance Issued Capital (m shrs) Mkt. Cap (HK$m/US$m) Major Shareholders Prada Holding B.V. (%) Free Float (%) Avg. Daily Vol.(000) 2,559 122,312 / 15,757 80.0 20.0 2,497

Prada (LHS)

Relative HSI INDEX (RHS)

Forecasts and Valuation FY Jan (EUR m) 2011A Turnover 2,047 EBITDA 527 Pre-tax Profit 388 Net Profit 251 Net Pft (Pre Ex.) 251 EPS (EUR) 0.10 EPS (HK$) 1.00 EPS Gth (%) 150.3 Diluted EPS (HK$) 1.00 DPS (HK$) 0.58 BV Per Share (HK$) 4.78 PE (X) 48.0 P/Cash Flow (X) 32.8 P/Free CF (X) 66.9 EV/EBITDA (X) 23.6 Net Div Yield (%) 1.2 P/Book Value (X) 10.0 Net Debt/Equity (X) 0.3 ROAE (%) 22.3 Earnings Rev (%): Consensus EPS (EUR): Other Broker Recs:

2012F 2,569 741 581 423 423 0.17 1.68 68.5 1.68 0.50 6.70 28.5 21.0 34.5 16.3 1.1 7.1 CASH 29.2 0.17 B: 10

2013F 3,122 933 760 542 542 0.21 2.15 28.2 2.15 0.65 8.34 22.2 17.2 27.0 12.6 1.4 5.7 CASH 28.6 0.21 S: 2

2014F 3,895 1,166 982 700 700 0.27 2.78 29.2 2.78 0.83 10.48 17.2 14.2 19.7 9.7 1.7 4.6 CASH 29.5 0.25 H: 7

ICB Industry: Consumer Goods ICB Sector: Personal Goods Principal Business: Designing, manufacturing, marketing and retailing of fashion and luxury goods under the brands of Prada, Miu Miu, Church's and Car Shoe

Source of all data: Company, DBSV, Bloomberg, HKEX

In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore. www.dbsvickers.com Refer to important disclosures at the end of this report ed- JS / sa- AH

Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (DBSVR), are to contact DBSVR at +65 6535 9688 in respect of any matters arising from or in connection with this report.

Company Focus Prada

Table of Contents
SWOT Analysis A luxury powerhouse
Grabbing opportunities now Company Background Business Model Sales Analyses Costs Analyses Key management team

3 4
4 4 5 5 6 7

Competitive Strengths Growth Strategies

Where is Prada now? Playing catch up

8 8
8 10

Industry prospects
The power of Chinese luxury consumption Prospects for luxury goods operators could still be rosy

10
10 11

Financial estimates Valuation Key Risks

12 14 17

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Company Focus Prada

SWOT Analysis

Strengths Strong branding with a century-old track record Among leaders and creators of fashion trends Prudent and experienced management team headed by the founders ascendants and long-term partners Integrity of branding is preserved through direct control over the value chain Asset-light business model which allows speedier expansion of DOS network High bargaining power in securing retail space and leasing terms

Weakness Over reliance on limited brand portfolio Brands under-utilised as only two out of four brands are performing well

Opportunities Growing middle class and rising demand for luxury goods among the younger population Margin expansion through sales network expansion of Directly-Owned Stores (DOS), operating leverage and strong pricing power Opportunities in existing markets that are under-penetrated such as North America, Northern Europe and China, as well as new markets such as Latin America, Gulf Region and Russia Potential market share improvement from low base Sister brand MIU MIU could be the next leg of growth with more focus on marketing efforts Potential from brands acquired by Prada i.e. CHURCHS and CAR SHOE (about 10-12 years in the hands of Prada) are still untapped

Threats Economic downturn could lead to weaker demand for luxury goods Lingering issues from taxation litigation or disputes could negatively affect bottomline if Prada loses, and vice versa. These mainly relate to transfer pricing and tax residence issues given its international presence Competition from peers (who may get better store locations or gain popularity due to more effective marketing strategies) and counterfeits (tarnishing brand image) Potential brand dilution due to overly aggressive DOS expansion

Source: DBSV

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Company Focus Prada

A LUXURY POWERHOUSE Grabbing opportunities now Company Background

Pradas business entered into a strong growth phase during the late 1970s when Mario's grand-daughter, Ms. Miuccia took over the management and launched a partnership with Mr. Patrizio Bertelli (current CEO) who operated a high-end leather goods business at that time.

Product offerings A prestige brand with a 100-year history. Prada S.p.A (Prada) designs, manufactures, promotes and sells high-end luxury products ranging from leather goods to ready-to-wear (apparels) Leather goods and footwear under four key brands - PRADA, MIU MIU, Ready-to-wear CHURCHS and CAR SHOE. Pradas history dates back c.100 years to 1913 when Mr. Mario Prada, the grandfather of Ms. Miuccia Prada (current President of Prada), opened a luxury store in the Galleria Vittorio Emanuele II in Milan. The store sold leather handbags, travelling trunks, leather accessories and beauty cases, luxury accessories and precious objects such as silverware and Bohemian crystal. It became the official supplier to the Italian Royal Family in 1919. Key events
Year 1913 1919 1977 1977 1980 1982 1983 1984 1986 1988 1993 1993 1997 2000 2000 2001 2003 2003 2003 2004 2004 2006 2006 2007 2009 2010 2011 Footwear Eyewear Fragrances

*MIU MIU offers products for female consumers only Source: Company

Events Mario Prada opened first luxury store in the Galleria Vittorio Emanuele II in Milan Prada became an official supplier to the Italian Royal Family Patrizio Bertelli set up I.P.I. S.p.A to consolidate the production resources that he had built up over the previous ten years, including those of Sir Robert and Granello I.P.I. S.p.A. obtained an exclusive license from Miuccia Prada to produce and distribute leather goods bearing the PRADA brand Design and launch of the "triangle" PRADA logo Launch of the first PRADA women's shoe collection Opening of the second PRADA store in Milan, Via della Spiga Launch of the PRADA black nylon backpack Opening of the first PRADA stores abroad in Europe (Madrid) and the US (New York) Launch of PRADA women's ready-to-wear collection and first women's fashion show in Milan Launch of MIU MIU women's collection (ready-to-wear, leather goods and shoes) Launch of the PRADA men's collection (ready-to-wear and shoes) Launch of the PRADA leisure-time line, identifiable by its "red stripe" Launch of the PRADA eyewear collection First Sponsorship of the Luna Rossa Challenge Opening of the first Epicenter Store in Soho, New York IPI S.p.A was merged into PRADA S.p.A. Opening of the second Epicenter Store in Aoyama, Tokyo Agreement with Luxottica for the production and distribution of eyewear for PRADA and MIU MIU Launch of PRADAs first fragrance Opening of the third Epicenter Store in Beverly Hills, Los Angeles Launch of the first PRADA men's fragrance First MIU MIU fashion show in Paris Launch of the LG PRADA mobile phone Launch of the exclusive new "made to measure" and "made to order" services Prada-dressed hostesses and stewards in the Italian pavillion at the Shanghai World Expo; launch of "PRADA Made in " Project First PRADA fashion show in Beijing

Source: Company, DBSV

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Company Focus Prada

International brand with a global presence. Prada distributes its products through two main channels i.e. retail and wholesale. Managing business via an integrated business model. Prada has As at end-FY11, for retailing, Prada owned a total of 319 an integrated business model encompassing design and Directly-Owned Stores (DOS) across 70 countries. At the same creation, collection of orders, sourcing and production, sales time, it has c.1,400 wholesale clients that include reputable distribution as well as communications and public relations luxury department stores and upscale multi-brand stores with strategies. extensive experience in selling fashion and luxury goods, as well as 33 mono-brand franchise stores (operated via 9 franchisees). It has a design team of c.60 designers and graphic artists Top 5 wholesale clients (excluding the Prada Family Ms. (including Ms. Miuccia Prada as the stylist) as of end-FY11 to Miuccia Prada Bianchi, her sister Ms.Marina Prada Bianchi and come up with new design concepts. It outsources c.80% of its her brother Mr.Alberto Prada Bianchi) contributed 7.1% to product manufacturing processes to c.480 external group sales (or 24.3% to the wholesale segment) in FY11. If manufacturers (semi-finished and finished products) while Prada Family is counted as of the top 5 clients, sales keeping the balance 20% of processes in-house, hence ensuring at least one important phase of the production process contribution to the group would be 7.6% (or 26% to the wholesale segment) in FY11. is performed internally. Prada has a total of 11 in-house factories (10 in Italy, 1 in the UK mainly for CHURCHS shoes). Business Model Business Model: Full Control of the Entire Value Chain

Source: Company

Sales Analyses By brand:

By product type:

Prada derived 50% of its product revenue in FY11 (from 40% in FY09) from Leather Goods i.e. handbags, travelling trunks, and PRADA remained the biggest revenue generator for the group leather accessories - Pradas core product type since 1913. at c.79% of total product revenue (excluding royalty fee income) Clothing or Ready-to-Wear (RTW) and Footwear served as the in FY09-11. This was followed by MIU MIU, where contribution next important product segment for Prada with revenue to revenue rose from 14.7% in FY09 to 16.3% in FY10, and contribution at 24% in FY11, shrinking from FY09s 29% as 17.3% in FY11. The balance was contributed by CHURCHS and demand for core leather goods grew faster. CAR SHOE brands. Product revenue breakdown by brand
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Prada Miu Miu F Y09 Church's F Y10 Car Shoe F Y11 Other 17% 15%16% 3%3%3% 2%1% 1% 1%0% 0% 79%79% 79%

Product revenue breakdown by product type

60% 50% 40% 30% 20% 10% 1% 1% 1% 0% Clothing Leather goods F Y09 F Y10 F ootwear F Y11 Other 29% 26% 24% 40% 30% 27% 25% 50% 46%

Source: Company, DBSV

Source: Company, DBSV

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Company Focus Prada

By sales channel: Sales split between retail and wholesale was more or less in similar proportion in FY09, with retail sales via DOS contributing 54% to product sales while wholesale was 46%. However, retail sales picked up faster during FY10-11 as sales contribution increased to 65% in FY10 and 71% in FY11 of total product sales. This was attributed to more DOS additions of 27 stores in FY10 and 54 in FY11, bringing total DOS to 265 and 319, respectively. Product revenue breakdown by sales channel
120% EUR1.6b 100% 80% 60% 40% 20% 0% F Y09 DOS F Y10 Wholesale ^
Selling expenses 31% A&P 4%

Costs Analyses Cost structure dominated by raw materials and selling/marketing expenses. The two biggest cost items for Prada are raw materials and selling expenses (includes sales staff salaries, rental expenses, depreciation expenses and other expenses related to managing DOS). As a percentage of revenue, these expenses made up 29% and 31% of total FY11 revenue, respectively. Cost structure in FY11
F Y11 total rev enue: EUR2.1b

EUR1.5b 35%

EUR2.0b 29%

Profits 12% Others 6% General & admin 7%

46%

Raw material & manuf. exp 29%

54%

65%

71%

F Y11

Transports 6% Product & dev 'ment 5%

Source: Company, DBSV

By geographical area: Pradas sales are predominantly from Europe, with contribution at 51%, 46% and 42% in FY09, FY10 and FY11, respectively. Although Europe is still the dominant market, its contribution is declining as demand in the Asia Pacific grew at much faster pace (2-year sales CAGR of +51% vs European markets +1%). Contribution from the Asia Pacific region has been rising from 18% in FY09 to 26% in FY10, and 32% in FY11. Product revenue breakdown by geographical area
35% 30% 25% 20% 15% 10% 5% Europe America Asia Pacific 0% Italy Japan 1% 1% 1% countries North Other 27% 24% 24% 22% 22% 19% 18% 32% 26%

Source: Company, DBSV

18% 15% 15%

Good improvement in profitability. There was a significant improvement in profitability as EBIT margin marched up to 20.5% in FY11 vs FY09s 11.6% and FY10s 12.0%. This was lifted by: (a) the faster expansion in the retail segment, which was more profitable, compared to wholesale. Prada added 54 new DOS in FY11 vs 27 in FY10, as well as expanded its network coverage to the Middle East via a joint-venture agreement with leading luxury retailer Al Tayer Insignia LLC; and (b) adjustment in its mark-down policy as Prada reduced the number of products subject to mark-down and percentage of mark-down in product prices during the sales period. Since 4Q09, Prada has cut down price reduction rate for certain products from 50% to 30% and some from 20% to 10%. Sales are exposed to seasonal fluctuations. Pradas sales experience seasonal fluctuations as it is common in the fashion segment. Sales to wholesale clients usually peak between June and July in conjunction with delivery of the fall/winter collection, and between Dec and Jan for the spring/summer collection. Retail sales tend to peak in Dec, in line with general consumer spending patterns during the festive season. In FY09-11, sales in 4Q were the highest for the year, representing 30.7%, 32.7% and 32.4% of total FY sales, respectively.

12% 12% 11%

F Y09

F Y10

F Y11

Source: Company, DBSV

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Company Focus Prada

Sales Trend

Profitability Trend
EUR m

EUR m

40.0% 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2010A 2011A 2012F 2013F 2014F
Total Revenue Revenue Growth (%) (YoY)

900 800 700 600 500 400 300

35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0%

200

0.0%
100 2010A
Operating EBIT

2011A

2012F
Pre tax Profit

2013F

2014F
Net Profit

Source: Company, DBSV

Source: Company, DBSV

Key management team Management Composition. The management team comprises a list of managers with vast experience in their respective area. Ultimate direction is also being guided by the two co-founders, Ms. Miuccia Prada and Mr. Patrizio Bertelli. As far as we understand, there are no immediate successors for Ms. Miuccia Prada and Mr. Patrizio Bertelli. However, we think the succession risk is minimised given Prada Groups established and capable management team as listed in the following table. In addition, one of the key management behind the brands, Mr. Fabio Zambernardi, plays an important role in the group. He is Key management team
Name Miuccia Prada Bianchi Patrizio Bertelli Carlo Mazzi Donatello Galli Brice Baudoin Stefano Cantino Maurizio Ciabatti Alessandra Cozzani Stephen Etheridge Giuliano Giannessi Francois Kress Lorenzo Panerai Gabriella Schnitzler Davide Sesia Sebastian Suhl Cinzia Tito Armando Tolomelli Fabio Zambernardi Age 63 65 64 49 45 45 45 48 52 48 44 43 53 43 43 55 45 48 Position President (Wife of Mr. Patrizio Bertelli) CEO (Husband of Ms. Miuccia Prada Bianchi) Deputy Chairman Chief Financial Officer / Executive Director CEO Asia Pacific Group Communication and External Relations Director Group Engineering Directors Group Investor Relations Director CEO at Church & Co Group Corporate Finance Director CEO of Prada USA Leather Goods Industrial Division Director CEO of Prada Germany President of Prada Japan Group Chief Operating Officer - Commercial Area Group Human Resources Director Group Controlling Director Design Director

the Design Director for MIU MIU and PRADA brands since Nov 2002. He is responsible for the collection concept development, overseeing all the strategic activities as well as supporting the strategic brands image communication. In fact, Mr. Fabio Zambernardi has been collaborating with Prada since 1981. Ms. Prada and Mr. Bertelli have been working closely with Mr. Zambernardi as which we believe should ease the risk of any product development disruptions.

Source: Pradas prospectus

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Company Focus Prada

Special collections to entice sales. Apart from main product collections, Prada has introduced flash collections and monthly packages in order to keep consumers interest and to entice sales. Flash collections are supplementary products for the existing main collections with minor variations through a leaner production process. It normally takes 4-6 weeks from design to the placement of the flash collections in the DOS. For monthly collections, these are special collections produced for specific events (such as Christmas and Valentines Day) and are available in DOS for a limited period of one month only. GROWTH STRATEGIES Where is Prada now? Pradas global sales network for PRADA brand consists of 207 DOS, the third largest after LV (451) and Gucci (317) based on 2011 estimates. There remains room for further growth given its strong brand name and growing demand for luxury goods in Asia and the Middle East. However, its second brand MIU MIU is under-penetrated with only 71 DOS currently, far behind some of the leading brands like Dior, Bottega Veneta and Chanel. On a base of 319 DOS as of end-FY11, Prada has key presence in Italy (37), Europe (88), North America (39), Asia Pacific (99) and Japan (56). (Please refer to charts on pages overleaf for Pradas global presence and further breakdown of DOS by geographical area vs peers).

COMPETITIVE STRENGTHS Strong branding with a century-old track record. Pradas brand value has been building up since 1913 by founder Mr. Mario Prada, the grandfather of Ms. Miuccia Prada (current President of Prada Group). Pradas success as a prestigious, high-end leather goods brand owner is attributed to its focus and consistent effort in product innovation. Its success has been supported by rising consumerism in luxury products, in line with growing high-net-worth individuals and middle-class population especially in Greater China (disclosed under Asia Pacific). Pradas sales from Asia Pacific grew at 2-year CAGR of 51.1% vs European markets 1.3% p.a over FY10-11. Strong leadership from key management. The management team consists of a group of senior management with vast experience in the industry or related industries or in their own space of expertise. The two co-founders namely Ms. Miuccia Prada and Mr. Patrizio Bertelli are actively involved in growing its existing brand portfolio. Direct control to maintain brand integrity. Prada has direct control over production processes and value chains in order to maintain brand integrity and manage costs at the same time. This has helped to boost sales and margins between FY09 and FY11.

Pradas DOS network coverage - Total 319 DOS as of FY11

Source: Company, DBSV

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Company Focus Prada

PRADA and MIU MIU have fewer DOS than competitors

Bigger market in Asia that is still growing

500 400

451
180

Asia
169 153

317 300 207 200 100 0 LV Hermes Prada Dior Bottega Veneta Miu Miu Chanel Gucci 71 193 175

150 120 116 89 49

148

145

90 60 30 0 Prada Miu Miu LV Gucci 38

Hermes Chanel

Rooms for PRADA and MIU MIU to expand in mature market

DOS presence still low in Mainland China

Europe 120 105 79 65 60 26 10 0 Prada Miu Miu LV Gucci Hermes Chanel Prada Miu Miu 4 70 51 20 30 14 30 50

Mainland China

40 90 40 35

17 8

LV

Gucci

Hermes Chanel

Significant untapped market in North America

North America 150 129 120 90 64 60 30 0 Prada Miu Miu LV Gucci Hermes Chanel 26 7 33 31

Source: Company, DBSV (2011 estimates)

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Company Focus Prada

Margin enhancement opportunities. The group is continuously exploring ways to increase margins through raising unit margin and cost efficiencies. This could be achieved via: (a) Alternative material sourcing and economies of scale; and (b) Expanding retail sales channels through DOS, which has higher margin than wholesale due to the differences between sell-in and sellout prices. In our view, possible margin enhancement could also come from adjustment in its mark-down policy, where Prada has reduced the number of products subject to markdown and percentage of mark-down of product prices during sales period. INDUSTRY PROSPECTS The power of Chinese luxury consumption
389 474 554 7 6 50 133 57 165

Playing catch up Adding new DOS. Prada has set an aggressive expansion plan for FY12-14F to add a total of 240 DOS (net of store closings) by FY14F (average of 80 DOS p.a). This target is more than its previous net openings of about 30 stores a year. We understand that out of the total 240 new DOS, Prada plans to open 70 in the Asia Pacific with China taking up more than 30 DOS. As at 31 Oct 2011, Prada has added 46 DOS (net of store closings). For FY12F, we understand that Prada could have a net addition of nearly 70 new DOS, slightly below the average target of 80 DOS p.a. However, we believe Prada would fill up the gap in FY13F. Pradas DOS network growth
(Unit) 600 500 400 300 200 100 0 FY09 FY10 Prada FY11 Miu Miu FY12E FY13F FY14F Church's Car Shoe 2 34 36 166 3 34 51 177 5 36 71 207 238 319 265 5 43 99 285 325

242

According to Almagamma Worldwide Markets Monitor, Asia ex-Japan was the fastest growing region for luxury goods consumption in 2005-2010, growing 13.4% CAGR to EUR28bn vs other regions -1.7% to 7.9% p.a. Within the region, Greater China (China, Hong Kong, Macau and Taiwan) grew 23% y-o-y and comprised 10.2% (or EUR17.6bn) of global luxury goods sales in 2010E. This was very close to Japans share of 10.5% of global luxury goods sales but recorded zero growth. A market study by the US consulting firm, McKinsey & Co also pointed to an expectation of strong growth in luxury goods demand in China. According to its report in 2011, China would consume about US$27bn (or EUR35bn) annually in luxury goods in 4-5 years time. This would consist c.20% of global luxury goods markets estimate of US$135bn (EUR175bn) in 2015. Global luxury goods market by geographical region
(EUR bn) 250 170 200 150 100 50 54 2010E 2005 2006 2007 2008 2009 2011F 2014F 61 147 6 15 21 51 160 6 16 21 56 7 19 20 58 FY11-14F +6.2% CAGR 221 11 185 166 172 9 44 153 9 8 8 33 18 28 20 23 17 20 18 18 67 57 53 53 46 65 58 64 68 80

Source: Company, DBSV

Entering new markets. Prada plans to enter new markets in the Middle East including United Arab Emirates, Kuwait, Qatar and Saudi Arabia, South America such as Brazil, and Eastern Europe including Russia. These are countries it currently has no presence in or only has wholesale distribution exposure. Growing younger brand MIU MIU. Prada intends to grow its sister brand MIU MIU which was founded by Ms. Miuccia Prada in 1993 for young and fashion-forward female customers. MIU MIU derived 35% of sales from Asia Pacific in FY11. It continued to record strong demand from Asia Pacific, especially the Greater China where sales grew 42% y-o-y to EUR359.3m in 9MFY12. The group is looking to add c.30 DOS for MIU MIU in Asia Pacific by FY14F. E-commerce - new growth dimension. Prada started to offer its products through e-commerce in 2010. This channel generated maiden sales revenue of EUR1.9m in FY11. This is a new avenue for growth as online shopping, a less costly and mass-reaching channel, is gaining popularity in the emerging markets as well as developed markets amid rising costs and preference for convenient shopping. We have not factored in any online sales estimates in our forecasts for now.

RoW Asia ex J apan J apan Americas Europe

66

Source: Almagamma Worldwide Markets Monitor, DBSV

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Company Focus Prada

Prospects for luxury goods operators could still be rosy 1) RMB appreciation, stronger purchasing power. The Chinese market has been the key growth driver for purchases of luxury goods between 2007 and 2010 (CAGR estimated at 27% to EUR9.2bn) partly due to RMB appreciation against EURO and USD, which boosted purchasing power. Since the Chinese government ended the yuan-dollar peg and moved to a currency basket basis on 21 Jul 2005, RMB has appreciated 13% and 27% against the EURO and USD respectively. Our economists expect RMB to strengthen further vs EURO by 16.8% in 2012F and 1.2% in 2013F, and vs USD by 3.1% in 2012F and 6.2% in 2013F. Luxury goods sales in China
(EURm) 10 31.1% 8 6 4 2 0 2007 2008 2009 2010 % yoy (RHS) Chinese Luxury Goods V alue (EURm) (LHS) 5.9 4.5 20.3% 7.1 29.6% 9.2 35% 30% 25% 20% 15% 10% 5% 0%

2) New consumption patterns in China. Luxury goods industry in China has developed a very interesting trend, where luxury goods consumption is segregated into two main categories: (a) self-consumption; and (b) gift-giving. This trend of buying luxury goods as gifts for business or personal relationship reasons is rising. This is in contrast with the spending pattern in Europe and North America whereby spending on luxury goods is based on practicality and necessity. According to The New York Times, consumption split between self-consumption and gifts is 50:50 in China, based on total sales value of luxury goods. 3) Privilege in pricing ability. Pricing power of luxury brands stays strong as selling prices normally go up to maintain their prestige status. This is different vis-a-vis other industries where prices are stable or even show a downward trend in order to stay competitive. We understand that industry-wide retail pricing for luxury goods tends to be adjusted upwards once or twice every year, with increases more apparent during the Spring season. According to a media report (from www.cnga.org.cn), key luxury brands like Hermes, Bulgari, Chanel and Dior raised prices between 5-15% during Jan-Feb 2012. Demand for luxury goods remains rosy despite price increases. The ideology behind this and brand owners pricing privilege is to maintain luxury brands high prestige status. 4) Preservation of margins backed by pricing power. Against the backdrop of RMB appreciation, we think retail pricing could continue to march up to maintain margins while keeping up with the prestige image. Historically, Prada managed to achieve better margins due to higher pricing, increased retail sales and improved economies of scale. Prada: Margins on the uptrend
(%) 80.0 70.0 60.0 50.0 40.0 30.0 20.4 11.6 12.0 58.0 62.4 67.8

Source: Almagamma Worldwide Markets Monitor, DBSV

RMB appreciated vs EUR and USD

(unit/CNY) 0.18 0.16 0.14 0.12 0.10 0.08 0.06 2007 2008 2009 2010 2011 2012F 2013F CNY per EUR CNY per USD

20.0 10.0 -

FY09 Gross margin

F Y10 EBIT margin

F Y11

Source: Bloomberg, DBS, DBSV

Source: Company, DBSV

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Company Focus Prada

FINANCIAL ESTIMATES Multiplier effect from global economic growth. Based on historical trend in 2004-2007, every 1% increase in global GDP boosted global luxury goods sales by 1.2%-1.9%, but this multiplier has increased to 2.0%-2.5% in recent years (20102011F). Meanwhile, based on 2010 and 2011E data, for every 1% increase in global luxury goods sales, Pradas sales increase by 2.5%-3.4%. Our sales growth assumptions on Prada of 21.5% and 24.7% for FY13-FY14F translate into a multiplier of 2.2x on global GDP growth and 2.9x on luxury goods sales growth as tabulated in the following table. Global GDP to global luxury goods industry
Growth Index (1995=100)

Pradas sales growth assumption

Calendar Year 2009* 2010 2011E 2012F 2013F Global GDP Growth (1.3) 5.0 3.8 3.4 3.9 Multiplier 6.2 2.5 2.0 2.2 2.2 Luxury Goods Growth (7.8) 12.4 7.6 7.5 8.6 Multiplier 0.6 2.5 3.4 2.9 2.9 Prada's Sales Growth (5.0) 31.1 25.4 21.7 24.9

* Global financial crisis Source: IMF, World Bank, DBSV

Source: Altagamma Worldwide Markets Monitor, International Monetary Fund

2-year earnings CAGR of 28.7%. We expect Prada to post 2year earnings CAGR of 28.7% to EUR701m by FY14F, on the back of 2-year revenue CAGR of 23% to EUR3.9bn. Key sales driver would mainly come from the Asia Pacific region, in particular Greater China amid the rising middle class income group and increasing demand for luxury lifestyle from the younger population. Sales breakdown by brands in percentage terms is expected to change slightly as we expect higher sales contribution from MIU MIU. Meanwhile, leather goods sales should continue to rise and dominate group sales.

Pradas strategy to add 240 DOS (c.80 p.a.) by FY14F should boost retail segments contribution vs wholesale. Margins could improve further as retail segment is more profitable. We expect Pradas EBIT margin to inch up 1.0ppt to 24.6% in FY13F, and 0.6ppt to 25.2% in FY14F on better operating leverage and higher retail contribution.

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Company Focus Prada

Asia Pacifics contribution is expected to rise to 40% by FY14F

45% 40% 35% 30% 25% 20% 15% 10% 5% Europe North America 0% Italy Asia Pacific Japan 19% 22% 22% 17% 15% 13% 11% 32% 40%

DOS sales contribution is expected to rise to 84% by FY14F

120% 100% 80% 60% EUR2.0b 29% EUR2.5b 20% EUR3.1b 18% EUR3.9b 16%

8% 1% 1% Other countries

40% 20% 0%

71%

80%

82%

84%

FY11

FY12F DOS

FY13F Wholesale ^

FY14F

F Y11

F Y12F

F Y13F

F Y14F

Source: Company, DBSV

^ Independent customers, franchises and related parties Source: Company, DBSV

MIU MIUs sales contribution is expected to rise

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Prada F Y11 Miu Miu F Y12F Church's Car Shoe Other F Y13F F Y14F 17.5% 2.6% 2.3% 0.9% 0.7% 0.3% 0.2% 23.9% 78.7% 72.9%

EBIT margin is expected to rise as DOS contribution increases

(EBIT%) 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% FY09 11.6% 871.3 732.9 100% 25.2% 90% 23.7% 80% 20.4% 70% 60% 50% 12.0% 2,029.1 2,531.0 3,239.9 40% 991.5 1,427.4 30% 20% 10% 0% FY10 FY11 FY12E FY13F FY14F 24.6% DOS Sales Wholesale Sales EBIT Margin 539.1 589.7 507.3 555.6 617.1 (Sales %)

Source: Company, DBSV

Leather goods sales remain the key product type

70% 60% 50% 40% 30% 24% 20% 17% 20% 15% 10% 0% Clothing Leather goods FY11 FY12F Footwear FY13F Other F Y14F 25% 23% 22% 20% 1%1%1% 1% 60% 64% 57% 50%

Wholesale customers refer to independent customers, franchises and related parties Source: Company, DBSV

Source: Company, DBSV

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Company Focus Prada

PE, PEG and P/BV. All of the three companies are positioned as luxury brand owners and operators with either a global presence or in the midst of establishing a global presence (i.e. Michael Kors). We think the valuation discrepancy is unjustified given Pradas size and growth potential. Meanwhile, an expectation of a strengthening HKD (pegged to USD) against EUR by 13% in 2012F presents another attractive investment opportunity for investors with EUR-denominated funds. Stronger financial position. We expect Pradas balance sheet to have a net cash balance of EUR319m in FY13F from EUR 5m in FY12F, mainly driven by strong cash generation from operations assuming demand for luxury goods continues to flourish. Potential higher dividend payout in the medium-term. We understand there is no stated dividend policy but the group looks to pay 25-30% of earnings as dividends. We think the group could be paying out more than 25-30% of earnings in the medium-term given its strong Free Cash Flow of c.EUR349m in FY12F, EUR446m in FY13F, and EUR611m in FY14F, in the absence of any major capex requirement. Having said that, based on a 30% prudent payout assumption, this would translate into 1.1%-1.7% net yield in FY12F-FY14F.

VALUATION Initiating coverage with BUY. By attaching a PE multiple of 27x (based on peers average PE of 27x) on Pradas CY12 EPS of HK$2.11, we derive a target price of HK$57.00 for Prada. This is equivalent to 0.9x PEG, which is relatively cheaper compared to its peers average PEG of 1.3x. With potential upside of 19%, we initiate coverage on Prada with BUY recommendation. Share price performance was resilient despite concerns on the global economy. Post IPO debut (IPO price: HK$39.50), Pradas share price hit a high of HK$49.45 on 27 July 2011 before tumbling to the low of HK$28.80 on 3 Oct 2011. This was mainly affected by looming concerns on the European sovereign debt risk which could have contagion effects on the global economy as well as demand for luxury goods. Pradas share price has since rebounded and traded between HK$32 and HK$40 for 4.5 months before breaking above HK$40 in mid-Feb 2012, possibly reflecting its solid fundamentals underpinned by resilient demand for soft luxury goods. A neglected jewel? Compared to some recently listed peers i.e. Salvatore Ferragamo (SFER IM Equity) and Michael Kors (KORS US Equity), Prada is the largest by market cap and earnings, and has the highest pretax margin. Yet, it is the cheapest by Peer valuation
Company FYE Price (local) 47.80 135.00 249.40 136.00 1,554.00 47.65 84.25 15.20 Market cap (US$m) 15,757 89,455 34,354 22,540 10,674 9,091 3,365 3,340 FY11F 28.5 22.4 48.0 17.5 25.0 65.6 19.1 31.5 32.7 PE

Div yield (%) FY13F 17.2 17.2 37.1 12.7 18.1 37.6 16.1 16.4 22.2 FY11F 1.1 1.3 0.8 2.6 0.0 n.a. 3.3 1.2 1.5 FY12F 1.4 2.2 0.9 3.0 0.0 n.a. 3.6 1.6 1.9

ROE (%) FY10 22.3 12.9 19.5 8.2 28.4 57.9 15.8 25.3 24.0

Net gearing (x) FY10 0.3 0.2 Cash 0.3 Cash 0.7 Cash 0.1

Prada SpA^* LVMH Hermes Intl PPR Burberry Grp PLC ^ Michael Kors ^* Tod's SpA Salvatore Ferragamo* Average

Jan Dec Dec Dec Mar Mar Dec Dec

FY12F 22.2 19.5 41.3 14.8 21.3 48.5 17.8 25.7 27.0

Earnings CAGR (%) FY1113F 28.7 14.1 13.6 17.3 17.3 32.1 8.8 38.4 20.2

PEG (x) FY13F 0.6 1.2 2.7 0.7 1.0 1.2 1.8 0.4 1.3

Share price is as of 15 Mar 2012 Currency: EUR/USD = 0.77; HKD/USD = 7.76; CHF/USD = 0.93; GBP/USD = 0.64 ^ FY10=FY11, FY11F=FY12F; FY12F= FY13F; FY13F=FY14F * Listed within the last 12 months Source: Bloomberg, DBS Vickers

Page 14

Company Focus Prada

Financial comparison
FYE Prada SpA^* LVMH Hermes Intl PPR Burberry Group PLC^ Michael Kors ^* Tod's SpA Salvatore Ferragamo* Jan Dec Dec Dec Mar Mar Dec Dec Revenue (USDm) FY11F FY12F FY13F 3,353 4,074 5,082 30,870 34,761 37,774 3,709 4,162 4,562 15,954 17,310 18,417 2,915 3,314 3,768 1,281 1,664 2,055 1,166 1,246 1,348 1,277 1,463 1,624 Pretax Margin (%) FY11F FY12F FY13F 22.6 24.4 25.2 20.8 20.8 21.7 30.8 30.3 30.6 11.2 12.5 13.2 20.2 20.6 21.1 18.0 18.6 19.2 23.6 24.5 24.5 18.5 19.8 20.5 Net Profit (USDm) FY11F FY12F 552 707 3,999 4,577 716 832 1,287 1,523 427 501 139 188 176 189 106 130 FY13F 914 5,205 925 1,770 588 242 209 203

Currency: EUR/USD = 0.77; HKD/USD = 7.76; CHF/USD = 0.93; GBP/USD = 0.64 ^ FY10=FY11, FY11F=FY12F; FY12F= FY13F; FY13F=FY14F * Listed within the last 12 months Source: Bloomberg, DBS Vickers

Prada: PE band chart

Prada: PB band chart

PE (x) 28.0 26.0 24.0 22.0 20.0 18.0 16.0 14.0 12.0 Sep-11 Dec-11 Oct-11 Aug-11 Nov-11 Feb-12 Jun-11 Jan-12 Jul-11 -1 SD -2 SD +2 SD +1 SD Mean

PBV (x) 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 Sep-11 Dec-11 Jan-12 Aug-11 Nov-11 Feb-12 Oct-11 Jun-11 Jul-11 -1 SD -2 SD +1 SD Mean +2 SD

Source: Bloomberg, DBS Vickers

Source: Bloomberg, DBS Vickers

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Company Focus Prada

Salvatore: PE band chart Salvatore: PB band chart

PE (x) 35.0 30.0 25.0 20.0 15.0 10.0 Sep-11 Dec-11 Aug-11 Nov-11 Feb-12 Oct-11 Jun-11 Jan-12 Jul-11

PBV (x) 8.0 7.5

+2 SD +1 SD Mean -1 SD -2 SD

7.0 6.5 6.0 5.5 5.0 4.5 4.0 Sep-11 Dec-11 Oct-11 Jan-12 Aug-11 Nov-11 Feb-12 Jun-11 Jul-11

+2 SD +1 SD Mean -1 SD -2 SD

Source: Bloomberg, DBS Vickers

Source: Bloomberg, DBS Vickers

Michael Kors: PE band chart

Michael Kors: PB band chart

PE (x) 70.0 65.0 60.0 55.0 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 Dec-11 Feb-12 Jan-12

PBV (x)

+2 SD

19.0 +2 SD 17.0 15.0 +1 SD Mean -1 SD -2 SD

+1 SD

Mean

13.0 11.0

-1 SD

9.0 7.0 5.0 Dec-11 Jan-12 Feb-12

-2 SD

Source: Bloomberg, DBS Vickers

Source: Bloomberg, DBS Vickers

Page 16

Company Focus Prada

KEY RISKS Economic downturns. A downturn in the global economy could adversely affect demand for luxury goods. During the 2008/09 global economic crisis, the value of global luxury goods market fell 7.8% y-o-y in 2009 to EUR153bn, while Pradas FY10 sales (for the year ended Jan10) contracted 5% y-o-y to EUR1.6bn. However, when the economy recovered, global demand for luxury goods rebounded strongly by 12.4% y-o-y to EUR172bn in 2010E, while Pradas revenue surged by 31.1% y-o-y to EUR2.1bn for the year ended Jan11, exceeding 2008s level. Based on our sensitivity analysis, every 1% growth in the global luxury goods market will raise Pradas sales by c.2.5%-3.4%. However, during a downturn, every 1% drop in the global luxury goods market will lead to a 0.6% decline in Pradas sales. Potential brand dilution from overly aggressive expansion. We think there could be a risk of brand dilution if DOS expansion is too aggressive within a short period of time. It could become too commercialised and easily obtainable as opposed to the perception that the products have a prestige value and are exclusive. We think this boils down to brand communication and marketing strategies while striking a balance between expansion and maintaining its prestige status. As for Pradas current expansion plans, the group has accelerated the pace of store additions while the scale still remains fairly reasonable, especially given its lower number of stores in various major consumer markets against close peers. SA), a leader in the luxury goods industry with an estimated market share of 18% in global luxury goods market in 2010. LVMH has a stable of brands in each of its product segments. For example, Louis Vuitton, Fendi, Donna Karan, Loewe, Marc Jacobs, Cline, Kenzo, Givenchy, Thomas Pink, Pucci, Berluti, and Rossimoda are among the brands that form its fashion and leather goods franchise, while Christian Dior, Guerlain, Givenchy and Kenzo are in the perfumes, make-up and skincare sector. Forex exposure. Prada is exposed to various forex currencies due to its global presence. However, we are less concerned on this matter as the group has adopted a hedging policy, which had helped to minimise currency fluctuations in the past. Prada incurred total exchange losses (net of gains) of EUR2.1m in FY09, EUR8m in FY10, and EUR4.7m in FY11. Interest rates exposure. As at 31 Jan 2011, Pradas total debt amounted to EUR497.6m, with the split between short-term and long-term debt standing at 39% and 61%, respectively. Out of the short-term loans, 96% was represented by fixed interest rate loans. Meanwhile, c. 80% of long-term loans was represented by fixed rate loans. We believe any fluctuation in benchmark interest rates will not affect Prada materially given that it has little exposure to floating rate loans.

Ongoing tax disputes. Prada was involved in a total of 18 tax disputes during FY09-11. It paid tax penalties of EUR5.8m, EUR3.9m, and EUR2.4m in FY09-11, respectively. The company has also made provisions in respect of tax disputes of EUR6.9m, EUR7.3m, and EUR40.1m for FY09-11, respectively. These tax Over reliance on existing brands. There could be a risk of disputes were mainly due to issues such as: (a) tax residence; (b) insufficient brands to support Pradas longer term growth as we permanent establishment; and (c) transfer pricing. believe that every brand has a growth ceiling in order to preserve its prestigious or premium status. Prada could adopt a more pro-active strategy to widen its brand portfolio to increase its revenue base such as PRADA-liked or MIU MIU-liked brands. Take the case of LVMH (LVMH Moet Hennessy Louis Vuitton

Page 17

Company Focus Prada

Key Assumptions
FY Jan No. of new stores (unit) Total no. of stores (unit) EBIT margin (%) 2009A n.a. 238 11.6 2010A 35 265 12.0 2011A 59 319 20.4 2012F 75 389 23.7 2013F 85 474 24.6 2014F 80 554 25.2

Sensitivity Analysis

FY13F Raw materials +/1% Selling exp +/- 1% Net Profit -/+ 1% Net Profit -/+ 1.3%

Segmental Breakdown (EUR m)

FY Jan Revenues (EUR m) Prada Miu Miu Church's Car Shoe Others Total 2009A 1,266 240 50 34 54 1,644 2010A 1,210 252 44 19 37 1,561 2011A 1,587 353 53 18 36 2,047 2012F 1,936 512 64 18 40 2,569 2013F 2,291 693 74 22 43 3,122 2014F 2,814 922 87 26 46 3,895

Key growth drivers remain PRADA and MIU MIU

Income Statement (EUR m)

FY Jan Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) 2009A 1,644 (691) 953 (762) 191 (2) 1 (36) 0 154 (53) (2) 0 99 99 282 N/A N/A N/A N/A 58.0 11.6 6.0 19.7 9.1 14.0 0.0 5.3 2010A 1,561 (587) 975 (788) 187 (8) 0 (24) 0 155 (53) (3) 0 100 100 282 (5.0) 0.2 (2.1) 1.4 62.4 12.0 6.4 9.8 4.6 6.9 0.0 8.0 2011A 2,047 (659) 1,388 (970) 418 (5) (4) (21) 0 388 (135) (3) 0 251 251 527 31.1 86.7 123.7 150.3 67.8 20.4 12.3 22.3 11.1 14.9 58.2 19.6 2012F 2,569 (740) 1,829 (1,222) 608 (9) 0 (18) 0 581 (154) (4) 0 423 423 741 25.5 40.6 45.3 68.5 71.2 23.7 16.5 29.2 16.3 21.6 30.0 33.5 2013F 3,122 (893) 2,229 (1,460) 769 0 0 (9) 0 760 (213) (5) 0 542 542 933 21.5 25.9 26.5 28.2 71.4 24.6 17.4 28.6 17.9 23.1 30.0 87.9 2014F 3,895 (1,161) 2,734 (1,752) 982 0 0 0 0 982 (275) (7) 0 700 700 1,166 24.7 24.9 27.7 29.2 70.2 25.2 18.0 29.5 19.7 25.4 30.0 n.m.

Margins Trend
26.0%

21.0%

16.0%

11.0%

6.0% 2010A 2011A 2012F 2013F 2014F Operating Margin % Net Income Margin %

Main cost items are raw materials purchased and selling expenses related to retail operating expenses Gradual increase in margins reflecting its operating leverage and higher retail contribution

Source: Company, DBS Vickers

Page 18

Company Focus Prada

Balance Sheet (EUR m)

FY Jan Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholders Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) 2009A 379 10 1,041 87 251 251 158 2,176 367 386 264 147 1,003 9 2,176 273 (544) 27.8 70.3 76.6 1.5 1.0 0.4 0.5 0.5 22.9 NA 2010A 418 10 1,033 99 232 224 133 2,148 459 370 111 150 1,048 9 2,148 218 (472) 55.5 161.3 182.4 0.7 0.8 0.4 0.4 0.5 23.3 NA 2011A 537 2 1,058 97 280 274 119 2,366 194 465 303 193 1,204 6 2,366 209 (401) 44.4 145.1 172.6 0.9 1.2 0.6 0.3 0.3 37.7 NA 2012F 619 2 1,052 352 395 270 119 2,809 144 571 203 193 1,688 10 2,809 214 5 38.7 161.1 206.3 1.0 1.6 0.9 CASH 0.0 64.7 NA 2013F 710 2 1,046 567 480 329 119 3,252 94 693 153 193 2,103 15 3,252 235 319 35.0 162.9 219.3 1.0 1.9 1.1 CASH (0.2) 103.0 NA 2014F 766 2 1,040 912 599 410 119 3,847 44 844 103 193 2,641 22 3,847 285 764 34.6 149.9 201.7 1.1 2.3 1.5 CASH (0.3) 162.6 NA

Asset Breakdown

Debtors 16.5% Inventory 24.1%

Net Fixed Assets 37.8%

Associates'/J Vs 0.1%

Bank, Cash and Liquid Assets 21.5%

c.80% of Other LT Assets is Intangibles Assets

Strengthening fundamental with growing cash from operation

Source: Company, DBS Vickers

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Company Focus Prada

Cash Flow Statement (EUR m)

FY Jan Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) (Pft)/ Loss on disposal of FAs Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (EUR) Free CFPS (EUR) 2009A 154 92 (98) (1) 0 27 (8) 166 (144) (8) 0 0 0 (152) (1) (15) 0 0 (16) 7 5 0.05 0.01 2010A 155 104 (39) 0 0 49 11 280 (133) (9) 0 0 0 (142) (48) (77) 0 0 (125) (3) 9 0.09 0.06 2011A 388 118 (90) 4 0 (76) 23 368 (188) (4) 0 0 0 (192) (59) (110) 0 0 (169) 4 10 0.17 0.07 2012F 581 142 (108) 0 0 (51) 10 574 (225) (4) 0 0 0 (229) (146) (150) 207 0 (89) 0 256 0.24 0.14 2013F 760 164 (154) 0 0 (80) 10 701 (255) (4) 0 0 0 (259) (127) (100) 0 0 (227) 0 215 0.31 0.17 2014F 982 184 (213) 0 0 (112) 10 851 (240) (4) 0 0 0 (244) (163) (100) 0 0 (263) 1 346 0.38 0.24

Capital Expenditure

300 250 200 150 100 50 0 2010A 2011A 2012F 2013F 2014F

Capital Expenditure (-)

Capex is mainly for new store openings

Source: Company, DBS Vickers

Page 20

Company Focus Prada

APPENDIX A. Management Team

Source: Company

Page 21

Company Focus Prada

B. Branding The Identity

Source: Company and various websites

Page 22

Company Focus Prada

C. Store Concept

PRADAs Store Concept

Milan, Italy

Milan, Italy

Nagoya Tower, Japan

Canton Road, Hong Kong

MIU MIUs Store Concept

New Bond Street, London

Rem Koolhaas, SoHo, New York

Herzog & De Meuron, Aoyama, Tokyo

Source: Company

Page 23

Company Focus Prada

D. Potential Markets

Expansion potential in underpenetrated markets

Source: Company

Expansion potential in new markets

Source: Company

Page 24

Company Focus Prada

Expansion focus in Greater China market

Source: Company, DBS Vickers

Global luxury markets growth potential to be driven by retail expansion and rising demand from Asia especially China
(EUR bn) (% growth)

Source: Altagamma Worldwide Market Monitor

Page 25

Company Focus Prada

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson (www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg (DBSR GO). For access, please contact your DBSV salesperson. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers (Hong Kong) Limited (DBSVHK), a direct wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVR. It is being distributed in the United States by DBSV US, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBS Vickers Securities (USA) Inc (DBSVUSA) directly and not its affiliate. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBSVHK and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. DBSVHK accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVHK, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by DBSVHK and/or DBSVH (and/or any persons associated with the aforesaid entities), that: a. b. such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the analyst and his / her spouse and/or relatives and/or associate who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (interest includes direct or indirect ownership of securities, directorships and trustee positions).

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Company Focus Prada

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBSVHK and its subsidiaries do not have a proprietary position in the securities recommended in this report as of the date the report is published.

2.

DBSVHK, DBSVUSA, DBS Bank Ltd and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject companies mentioned in this document as of the latest available date of the updated information. Compensation for investment banking services: DBSVHK, DBSVUSA, DBS Bank Ltd and/or other affiliates may have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from the subject companies mentioned in this document. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

3.

RESTRICTIONS ON DISTRIBUTION This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use General would be contrary to law or regulation. This report is being distributed in Australia by DBSVR and DBSVS, which are exempted from the requirement to hold an Australian financial services licence under the Corporation Act 2001 [CA] in respect of financial services provided to the recipients. DBSVR and DBSVS are regulated by the Monetary Authority of Singapore [MAS] under the laws Australia of Singapore, which differ from Australian laws. Distribution of this report is intended only for wholesale investors within the meaning of the CA.. This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by Hong Kong the Hong Kong Securities and Futures Commission. This report is being distributed in Singapore by DBSVR, which holds a Financial Advisers licence and is regulated by the MAS. This report may additionally be distributed in Singapore by DBSVS (Company Regn. No. 198600294G), which is an Exempt Financial Adviser as defined under the Financial Advisers Act. Any research report produced by a foreign DBS Vickers entity, analyst or affiliate is distributed in Singapore only to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chap. 289 of Singapore. Any distribution of research reports published by a foreign-related corporation of DBSVR/DBSVS to Accredited Investors is provided pursuant to the approval by MAS of research distribution arrangements under Paragraph 11 of the First Schedule to the FAA. This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority. Research distributed in the UK is intended only for institutional clients. rd This report is being distributed in Dubai/United Arab Emirates by DBS Bank Ltd, Dubai (PO Box 506538, 3 Floor, Building 3, Gate Precinct, DIFC, Dubai, United Arab Emirates) and is intended only for clients who meet the DFSA regulatory criteria to be a Professional Client. It should not be relied upon by or distributed to Retail Clients. DBS Bank Ltd, Dubai is regulated by the Dubai Financial Services Authority. Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Vickers (Hong Kong) Limited 18 Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong Tel: (852) 2820-4888, Fax: (852) 2868-1523
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