Investment Rating - Buy (Maintained) with a current price of HKD 252.80 [1] Core Views - Yum China (9987 HK) reported H1 2024 revenue of USD 5 637 billion, up 1% YoY (or 5% excluding foreign exchange impact), with net profit attributable to shareholders of USD 499 million, up 3% YoY [4] - Core operating margin for H1 2024 was 11 4%, down 0 1 percentage points YoY [4] - Q2 2024 revenue was USD 2 679 billion, up 1% YoY (or 4% excluding foreign exchange impact), with net profit attributable to shareholders of USD 212 million, up 8% YoY [4] - System sales in Q2 2024 increased by 4% YoY (KFC/Pizza Hut up 5%/1% respectively), while same-store sales declined by 4% (KFC/Pizza Hut down 3%/8% respectively) due to lower average spending per customer [4] - Net addition of 401 stores in Q2 2024 (KFC/Pizza Hut added 328/79 stores respectively), with total store count reaching 15,423 (KFC/Pizza Hut at 10,931/3,504 stores respectively) [4] - Company maintains guidance of 1,500-1,700 net new stores in 2024 and a target of 20,000 total stores by 2026 [4] Financial Performance - H1 2024 restaurant margin was 16 6%, down 1 7 percentage points YoY (KFC/Pizza Hut at 17 8%/12 8%, down 2 1/0 5 percentage points respectively) [4] - Q2 2024 restaurant margin was 15 5%, down 0 6 percentage points YoY (KFC/Pizza Hut at 16 2%/13 2%, down 1 1/up 0 8 percentage points respectively) [5] - Food and packaging costs as a percentage of restaurant revenue increased to 31 8% in H1 2024, up 1 4 percentage points YoY [4] - Salaries and employee benefits as a percentage of restaurant revenue increased to 25 8% in H1 2024, up 0 3 percentage points YoY [4] Strategic Initiatives - Pizza Hut WOW stores, targeting young and price-sensitive consumers, launched in May 2024 with over 200 stores expected by year-end [5] - K Coffee stores expanded rapidly from 100 in March 2024 to nearly 300 in July 2024, with a target of 500-600 stores by year-end [5] - K Coffee sold nearly 100 million cups in H1 2024, showing strong growth potential [5] - Project Fresh Eye and Project Red Eye initiatives implemented to reduce unnecessary items and lower costs, with positive effects seen in Q2 2024 [5] Valuation and Forecast - 2024-2026 net profit attributable to shareholders forecast revised down to USD 862/931/1,031 million (down 3%/6%/7% respectively) [6] - EPS for 2024-2026 estimated at USD 2 24/2 42/2 68 [6] - Current share price implies 2024-2026 P/E multiples of 14x/13x/12x [6] - KFC and Pizza Hut still have room for growth in lower-tier cities, with small-store models aiding expansion [6] - Coffee business is seen as a new growth driver for the company [6] Market Data - Total shares outstanding: 385 million [2] - Market capitalization: HKD 97 428 billion [2] - 1-year low/high: HKD 225 20/454 70 [2] - 3-month turnover rate: 272 41% [2]

2024 年 8 月 7 日 百胜中国（9987.HK/YUMC.US） 坚忍不拔，再创佳绩 百胜中国 2024 年上半年收入 56.3 亿美元/+1.1%，归母净利润为 5.0 亿美元 /+3%，其中二季度收入 26.8 亿美元/+1%，归母净利润 2.1 亿美元/+8%。考虑当 下的消费环境，我们下调 24/25/26 年净利润至 8.6/9.7/10.9 亿美元。对应每 EPS 收益为 16.2/18.2/20.4 港元。维持"买入"评级，下调目标价至 376 港元， 较当前股价有 48%的上涨空间。 报告摘要 坚忍不拔，业绩保持正增长。百胜中国上半年收入 56.3 亿美元/+1.1%，归母净利润为 5.0 亿 美元/+3%，其中二季度收入 26.8 亿美元/+1%，归母净利润 2.1 亿美元/+8%。上半年核心利润 率为 11.4%/-0.1pct。系统销售额+5%，同店销售额-3%。在去年高基数的背景下依旧保持了收 入和净利润的增长。尽管同店销售略有下滑，但公司通过降本增效实现净利润的提升。截止 24 年 6 月门店数量达到 1.54 万家，上半年净新增 779 家门店，较 23 年 6 月增长 1 ...

市场从恐惧到贪婪，看起来只用一天。 3 万亿市值公司只剩苹果 肯德基开低价加盟店 Google 败诉，反垄断大战开场 腾讯、阿里继续联手投大模型 华为发布享界 S9，和北汽合作模式升级 关注《晚点财经》并设为星标，第一时间获取每日商业精华。 8 月 6 日日经 225 指数期货和韩国创业板指（KOSDAQ）涨到熔断，两国指数本身开盘后奔着收复前一 天的跌幅而去 —— 但都失败了 —— 日经 225 指数收涨 10.23%（前一天跌 12.4%)，韩国综合指数涨 3.3%（前一天跌 8.75%）。 不过指数经历一个跌停板后，需要涨 11.1% 才能回到原来点位。 3 万亿市值公司只剩苹果 今天 A 股创业板涨 1.25%、沪深 300 跌了 0.01%。北京时间下午开盘的欧洲股市没有延续亚太市场的乐 观。英国、法国、德国以及欧元区 STOXX 50 指数不同程度下跌。 经过这轮大跌之后，现在只有苹果市值还在 3 万亿美元之上 (美股 8 月 6 日开盘后一度跌破）。包括苹 果在内，全球市值前十公司（不含沙特阿美）在周一少了超过 7017 亿美元市值。不过，这些公司目前 合计市值还是较年初多了 2.86 万亿美元 ...

Investment Rating - The report maintains a "Buy" rating for Yum China, positioning it as a top choice in the restaurant industry with a target price of $38.8, indicating a potential upside of 30.2% from the current price of $29.8 [6][24]. Core Insights - Yum China's strong performance in Q2 2024 exceeded market expectations, demonstrating its robust counter-cyclical capabilities. The company has rapidly adjusted its product structure to meet consumer demand for value, leading to increased customer traffic and order volume [6][19]. - The company has implemented cost-cutting and efficiency measures to offset the negative impact of declining average transaction values on profit margins, resulting in a year-on-year increase in operating profit margin and a 4% growth in operating profit for Q2 2024 [6][19]. - The flexible pricing strategy and innovative store models, such as the Pizza Hut WOW concept, have expanded the customer base and opened up greater opportunities for store expansion in lower-tier markets [6][19]. Financial Performance Summary - For 2024, the company expects a revenue growth of 3% year-on-year, with operating profit margin stabilizing around 10% and net profit increasing in the mid-single digits [6][19]. - The financial projections indicate a revenue of $11,296 million for 2024, with a slight increase in net profit to $867 million, reflecting a 4.8% year-on-year growth [12][21]. - The report highlights a decrease in the proportion of food and packaging costs relative to revenue, which only increased by 0.8 percentage points year-on-year, while employee costs slightly decreased due to efficiency improvements [6][19]. Key Financial Metrics - Revenue for 2022 was $9,569 million, increasing to $10,978 million in 2023, with a projected revenue of $11,296 million for 2024, reflecting a year-on-year growth of 2.9% [12][21]. - The net profit for 2022 was $444 million, with a significant increase to $823 million in 2023, and a projected net profit of $867 million for 2024, indicating a growth of 4.8% [12][21]. - The report provides a forecasted PE ratio for Yum China of 14.9x for 2024, down from 16.9x in 2023, indicating a more attractive valuation [12][21].

Investment Rating - Maintains a **Buy** rating with a target price of **HKD 294.91**, based on a **15x FY25E P/E** [1] - The stock is currently trading at **13x FY25E P/E**, indicating it is not overvalued [1] Core Views - Despite weak sales growth in Q2 2024, net profit saw a significant increase, driven by cost management initiatives [1] - The report remains cautious about revenue growth in 2H24E due to high base effects and a weak macroeconomic environment [1] - Confidence in a turnaround in 4Q24E is supported by initiatives like **Project Fresh Eye**, **Project Red Eye**, and the introduction of more profitable store formats such as **K-Coffee** and **Pizza Hut's WOW model** [1] - The report expects **Q3 and Q4 sales/OP/NP growth** to be around **2%/8%/7%** and **+1%/30%/13%**, respectively [1] Sales and Profitability - Q2 2024 sales grew by **1% YoY** to **USD 2.68 billion**, below expectations, but net profit increased by **8% YoY** to **USD 212 million**, exceeding estimates [5] - **KFC's SSSG** declined by **3%** in Q2 2024, while **Pizza Hut's SSSG** fell by **8%**, though Pizza Hut's profitability outperformed KFC [5] - **Delivery sales** grew by **11%**, while **dine-in sales** declined by **3%** in Q2 2024 [5] - **FY24E net store opening target** remains at **1,500 to 1,700**, with a capital expenditure target of **USD 700-850 million** [5] Cost Management and Efficiency - **Project Red Eye** aims to improve supply chain efficiency by simplifying SKUs and reducing unnecessary items [1] - **Project Fresh Eye** focuses on reducing operational complexity, allowing store managers to focus on other tasks [1] - Increased use of **AI and automation**, with over **80% of Pizza Hut stores** equipped with automated rice cookers and **50% with robotic servers** [1] - **Labor costs** are expected to remain low, around **LSD levels** in FY24E, and **G&A expenses** are targeted at **5% of sales**, down from **5.8% in FY23** [1] Store Expansion and Formats - **K-Coffee** targets **500-600 stores** by FY24E, with **300 stores** already opened by July 2024 [1] - **Pizza Hut's WOW model** aims for **200 stores** by FY24E, with **100+ stores** opened by July 2024 [1][9] - The **WOW model** features simpler operations, targeting solo diners and value-conscious consumers, with promising initial results [10] Financial Performance and Forecasts - **FY24E revenue** is expected to grow by **1.4% YoY** to **USD 11.13 billion**, with **net profit** increasing by **5.1% YoY** to **USD 869 million** [12] - **FY25E revenue** is forecasted to grow by **9.1% YoY** to **USD 12.14 billion**, with **net profit** rising by **8.5% YoY** to **USD 943 million** [12] - **FY26E revenue** is projected to grow by **8.7% YoY** to **USD 13.19 billion**, with **net profit** increasing by **14.4% YoY** to **USD 1.08 billion** [12] Valuation and Peer Comparison - The stock is trading at a **15.4x FY24E P/E**, compared to the industry average of **28.8x** [13] - **ROE** is expected to remain stable at **11.6%** in FY24E and FY25E, increasing slightly to **11.9%** in FY26E [12] - **Dividend yield** is forecasted to increase from **1.8% in FY24E** to **2.8% in FY26E** [12] Key Initiatives and Innovations - **Pizza Hut's entry-level priced pizzas** saw double-digit growth in Q2 2024, driven by expanded price ranges and innovative new products [1] - **Single-person meals** and new store formats like **K-Coffee** and **Pizza Hut's WOW model** are expected to drive incremental sales and profit [1][9]

7 Aug 2024 CMB International Global Markets | Equity Research | Company Update Yum China (9987 HK) The best-in-class costs management in 2Q24 Sales growth was indeed a miss in 2Q24, but the net profit was a significant beat. For 2H24E, we are still very cautious about the demand and so as the level of competition. However, thanks to various efforts like Project Fresh Eye, Project Red Eye, rationalizing number of SKUs, more direct sourcing, and ramp up of more profitable store formats (e.g. K-coffee and Pizz ...

Investment Rating - The report maintains a "Buy" rating for Yum China (9987 HK) with a target price of HKD 359.30 [4][5]. Core Insights - In Q2 2024, Yum China reported a net profit of USD 212 million, exceeding previous expectations, with revenue of USD 2.68 billion, a year-on-year increase of 1% [1][2]. - The core operating profit reached USD 275 million, reflecting a year-on-year growth of 12%, with a core net profit margin of 10.0%, up 0.7 percentage points year-on-year [1][2]. - The company is focusing on enhancing its digital capabilities and optimizing operational efficiency, which is expected to strengthen growth resilience [1][3]. Summary by Sections Financial Performance - Q2 2024 revenue was USD 2.68 billion, with a year-on-year increase of 1% (4% excluding foreign currency effects) [1]. - Core operating profit was USD 275 million, up 12% year-on-year, with a core net profit margin of 10.0% [2]. - The company achieved a net profit of USD 212 million, an 8% increase year-on-year, outperforming prior forecasts [1][2]. Store Expansion and Innovation - In Q2 2024, Yum China opened 401 new stores, with 99 being franchise locations, bringing the total store count to 15,423 [3]. - The company is expanding its KFC and Pizza Hut brands, with a focus on innovative store formats like KCoffee and the WOW store model for Pizza Hut [3]. - The franchise model is enhancing penetration in remote and hub areas, with KCoffee expected to reach 500-600 locations by the end of 2024 [3]. Future Earnings Projections - EPS estimates for 2024, 2025, and 2026 are projected at USD 2.19, USD 2.42, and USD 2.71 respectively [4][6]. - The target price of HKD 359.30 is based on a 21x PE ratio for 2024, reflecting the company's strong market position and resilience [4][6].

Investment Rating - The report maintains a "Buy" rating for the company, with an expected PE ratio of 14.3X for 2024E, 13.0X for 2025E, and 11.8X for 2026E [1] Core Views - The company's 2Q24 revenue reached $2.68 billion, a 1% YoY increase (4% excluding currency impact), with core operating profit at $280 million (+12% excluding currency impact) and net profit attributable to shareholders at $210 million (+8%, +11% excluding currency impact) [1] - Store expansion supported revenue growth, with net new stores contributing 8% to system sales, while same-store sales declined by 4% due to demand pressure [1] - The company's total number of stores reached 15,423 by 2Q24, with a net increase of 401 stores in the quarter [1] - KFC's same-store sales declined by 3% in 2Q24, with a restaurant margin of 16.2% (-1.1pct, -0.6pct excluding comparable items) [1] - Pizza Hut's same-store sales declined by 8% in 2Q24, but restaurant margin improved to 13.2% (+0.8pct, +1.1pct excluding comparable items) [1] - The company returned $994 million to shareholders through dividends and buybacks in 1H24, with plans to distribute $250 million in cash dividends and $1.25 billion in buybacks for the full year 2024 [1] Financial Performance Summary - Revenue is projected to grow from $11.311 billion in 2024E to $13.483 billion in 2026E, with a CAGR of 8.78% [3] - Net profit attributable to shareholders is expected to increase from $874 million in 2024E to $1.059 billion in 2026E, with a CAGR of 9.78% [3] - ROE is forecasted to improve from 15.16% in 2024E to 18.39% in 2026E [3] - The company's P/E ratio is expected to decline from 14.31X in 2024E to 11.82X in 2026E, indicating potential undervaluation [3] Operational Highlights - KFC's K-Coffee store count increased from around 100 in March to approximately 300 by July, leveraging shared kitchen and labor resources for higher efficiency [1] - Pizza Hut's WOW stores, offering lower-priced products, expanded to over 100 locations by July, targeting cost-conscious customers [1] - The company achieved significant cost optimization through automation, labor savings, and improved management efficiency, with overall restaurant margin at 15.5% and management expense ratio at 5.0% in 2Q24 [1]

Financial Performance - Total revenue reached a record high of $2.68 billion, a year-over-year increase of 1%[2] - Same-store sales volume grew by 4%, achieving 96% of last year's level[3] - Operating profit increased by 4% to $266 million, marking a second-quarter record[3] - Core operating profit rose by 12% to $275 million[3] - Digital order revenue amounted to $2.2 billion, accounting for approximately 90% of restaurant revenue[3] - Shareholder returns approached $1 billion year-to-date, exceeding the total for 2023[3] - The restaurant profit margin was stable at 15.5%, with operational efficiency improvements[3] - Total revenue for the six months ended June 30, 2024, was $5,637 million, a 1% increase compared to $5,571 million for the same period in 2023[18] - Company restaurant revenue for the quarter was $2,528 million, slightly up from $2,517 million, with a year-to-date total of $5,322 million compared to $5,289 million[18] - Net profit for the quarter was $228 million, representing a 7% increase from $214 million in the same quarter last year[18] - The effective tax rate for the quarter was 25.2%, up from 24.7% in the same quarter last year[18] - Basic earnings per share for the quarter were $0.55, compared to $0.47 in the same quarter last year, reflecting an increase of 17%[18] - The total costs and expenses for the quarter were $2,413 million, a slight increase from $2,397 million in the same quarter last year[18] - The company reported a restaurant profit margin of 15.5%, down from 16.1% in the same quarter last year[18] - KFC's total revenue for the quarter ended June 30, 2024, was $2,014 million, a 2% increase from $1,984 million in the same quarter of 2023[19] - Pizza Hut's total revenue for the quarter ended June 30, 2024, was $7 million, a 36% increase from $5 million in the same quarter of 2023[20] - KFC's operating profit for the six months ended June 30, 2024, was $636 million, down 8% from $693 million in the same period of 2023[19] - Pizza Hut's operating profit for the six months ended June 30, 2024, was $87 million, a decrease of 4% from $90 million in the same period of 2023[20] - KFC's restaurant profit margin decreased to 16.2% from 17.3% year-over-year[19] - Pizza Hut's restaurant profit margin improved to 13.2% from 12.4% year-over-year[20] Store Expansion and Operations - The total number of stores reached 15,423, with a net addition of 401 stores in the quarter[3] - The company aims to add approximately 1,500 to 1,700 new stores in fiscal year 2024[11] - System sales for KFC increased by 5% year-over-year, driven by an 8% contribution from net new store openings[6] - KFC's operating profit reached $264 million, with core operating profit at $273 million, reflecting a 4% year-over-year growth[7] - Pizza Hut's system sales grew by 1% year-over-year, supported by an 8% increase in net new store openings[8] - Yum China operates over 15,000 restaurants across more than 2,100 cities in China, employing approximately 400,000 staff[16] - The number of KFC restaurants increased to 9,740 as of June 30, 2024, from 9,237 at the end of 2023, representing a growth of 5.43%[24] - The number of Pizza Hut restaurants increased to 3,504 as of June 30, 2024, from 3,312 at the end of 2023, indicating a growth of 5.79%[24] Shareholder Returns and Financial Strategy - The company repurchased approximately 5.1 million shares for a total of $187 million in the second quarter[10] - The board declared a cash dividend of $0.16 per share, payable on September 17, 2024[10] - The company plans to return a record $1.5 billion to shareholders through dividends and stock buybacks[11] - The company repurchased ordinary shares amounting to $869 million during the financing activities for the six months ended June 30, 2024[22] Cost Management and Efficiency - The company is committed to maintaining cost control and managing expenses effectively in a changing economic environment[15] - KFC's food and packaging costs increased by 4% to $626 million compared to $602 million in the same quarter of 2023[19] - KFC's employee benefits costs were $513 million, up 3% from $498 million in the same quarter of 2023[19] - The company provides non-GAAP financial metrics including adjusted operating profit, adjusted net profit, adjusted earnings per share, adjusted effective tax rate, and adjusted EBITDA[25] - The company believes that presenting these non-GAAP metrics provides additional information for investors to compare past and current performance[25] Future Outlook and Innovation - The company plans to leverage automation and AI to enhance operational efficiency and expand market share[4] - Future performance outlook includes expectations for continued growth and innovation in marketing and product development[15] - The company is focused on expanding its digital capabilities and membership programs to enhance customer engagement[16] - The company plans to continue expanding its market presence and investing in new product development[18] - The company is focusing on enhancing operational efficiency and exploring potential acquisitions to strengthen its market position[36] Food Safety and Quality Control - The company emphasizes the importance of food safety and quality control systems in its operations[15] Financial Metrics and Definitions - Restaurant profit is defined as total restaurant revenue minus direct costs associated with generating that revenue, including food and packaging costs, salaries and employee benefits, rent, depreciation, advertising, and other operating expenses[25] - The restaurant profit margin is calculated as restaurant profit divided by total restaurant revenue, providing insights into the profitability of self-operated restaurants[25] - Core operating profit is adjusted for special items and further excludes items affecting comparability and foreign currency translation effects[26] - The core operating profit margin is defined as core operating profit divided by total revenue excluding foreign currency translation effects[26] - Special items excluded from the adjusted metrics include temporary subsidies from owners and government agencies, VAT adjustments due to tax policy changes, and amortization of reacquired franchise rights recognized during acquisitions[26]

Investment Rating - Buy (首次评级) [1] Core Views - 百胜中国 is the largest chain restaurant company in China with 15,022 stores as of 1Q24, operating brands like KFC, Pizza Hut, and Lavazza [1] - The company has a high and stable ROE, averaging 15.0% from 2019 to 2023, and plans to return at least $3 billion to shareholders through dividends and buybacks from 2024E to 2026E [1] - The Western fast-food industry in China is resilient, with KFC holding a 16.4% market share in 2023 and Pizza Hut leading the pizza market with a 37.4% share in 2021 [1] - 百胜中国's competitive advantages include strong brand recognition, a robust supply chain, and digital transformation, which have improved operational efficiency and customer loyalty [1] - Future growth drivers include store miniaturization, expansion into lower-tier cities, and increased profitability through optimized store models [1] Company Overview - 百胜中国 operates six brands, including KFC, Pizza Hut, and Lavazza, with a total of 15,022 stores as of 1Q24 [1] - KFC and Pizza Hut are the main revenue contributors, accounting for 75% and 21% of total revenue in 2023, respectively [1] - The company has a strong digital presence, with 89% of sales coming from digital orders as of 1Q24 [1] - 百胜中国 has a well-established supply chain, with 33 logistics centers and strategic investments in key suppliers like Sunner Development [1] Industry Analysis - The Western fast-food market in China reached RMB 368.8 billion in 2023, accounting for 7.0% of the total餐饮 market, up 1.7 percentage points from 2016 [1] - The industry has a high连锁化率 due to fewer SKUs, less regional taste variation, and mature supply chains [1] - KFC leads the Western fast-food market with a 16.4% market share in 2023, while Pizza Hut dominates the pizza market with a 37.4% share in 2021 [1] Competitive Advantages - **Brand Strength**: KFC and Pizza Hut have been in China for over 30 years, with 440 million and 150 million members, respectively, as of 2023 [1] - **Product Innovation**: The company launches over 500 new products annually and has a "Billion Dollar Club" for high-performing products [1] - **Supply Chain**: 百胜中国 has a fully integrated supply chain, from采购 to餐厅, with 33 logistics centers and strategic investments in key suppliers [1] - **Digital Transformation**: The company has a strong digital ecosystem, with 89% of sales来自 digital orders as of 1Q24, and has significantly reduced labor costs through数字化 [1] Future Growth Drivers - **Store Miniaturization**: KFC and Pizza Hut have introduced smaller store formats, reducing initial investment by RMB 300,000 and RMB 400,000, respectively, and improving cash利润率 by 2-3 percentage points [1] - **Expansion**: The company plans to increase store density in higher-tier cities and expand into lower-tier markets, with potential for KFC and Pizza Hut to grow their store counts by 74.0% and 82.5%, respectively, by 2026 [1] - **Profitability Improvement**: With the increasing proportion of smaller, more profitable stores, the company expects further improvements in store-level profitability [1] Financial Projections - 百胜中国 is expected to achieve net profits of $850 million, $940 million, and $1.03 billion from 2024E to 2026E, with a CAGR of 10.3% [1] - The company's PE ratio is projected to be 12.9X, 11.0X, and 9.5X for 2024E, 2025E, and 2026E, respectively [1] - Based on a 50% weighting of PE and DCF valuation methods, the target price is set at HK$352.75, leading to a "Buy" rating [1]