HERMèS INTERNATIONAL S.A.(RMS.FP)：PYRAMIDION OF THE LUXURY WORLD

Investment positives
We initiate coverage of Hermès International S.A. with an OUTPERFORM rating and a target price of EUR1,800, based on a DCF valuation applying 3.0% terminal growth and 7.1% weighted average cost of capital (WACC).
Why an OUTPERFORM rating?
Relatively immune to economic downturns. As the most exclusive luxury brand patronized by high net worth consumers, Hermès enjoys resilient growth even in years of turbulence (+8% YoY in 2008 and +32% in 9M21 vs. 9M19), as its core customers are less impacted by (if not benefiting from) asset price appreciation from liquidity released for disaster relief.
Great earnings visibility with clear expansion plan. Hermès products have long been in short supply thanks to its disciplined approach in production expansion in pursuit of quality as well as high level of vertical integration. The company has announced 6-7% supply growth in the next three years, which combined with ASP lifts, could generate continuous 10%+ annual growth, in our opinion. We also expect faster earnings growth due to operating leverage.
Market rewards consistency. We believe a higher valuation for Hermès is justified as the evergreen brand has delivered steady and improving results in the past 20 years by avoiding fashion risks. Hermès had carefully chaperoned its cultural roots and artisanship traditions in a consistent manner, which has helped amass enduring brand equity for the Maison, in our view.
How do we differ from the market? We believe the market should apply a higher valuation on supply-driven names such as Hermès.
Potential catalysts: The company’s 2021 annual results, to be released in mid-February 2022, could beat market expectations, in our view.
Financials and valuation
Our EPS forecast is EUR22.53, 26.32 and 30.68 in 2021e, 2022e and 2023e, a CAGR of 21% over 2019-2023e. Our target price of EUR1,800 is based on DCF valuation, offering 11.3% upside. The stock is trading at 53x 2023e PE.
Risks
COVID-19 mutations; intense market competition; production slowdown.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。