Investment Rating - The report assigns a "Buy" rating for the company, marking its first coverage [2]. Core Insights - The company demonstrated stable operations with improved efficiency and resilience, achieving a revenue of $11.303 billion in 2024, a year-on-year increase of 3%, and a net profit of $911 million, up 10% year-on-year [5][11]. - The growth was primarily driven by store expansion, with a total of 16,395 stores by the end of 2024, and a net increase of 1,751 stores during the year [6][10]. - KFC outperformed Pizza Hut, with KFC revenue at $8.509 billion, a 3% increase, while Pizza Hut revenue was $2.260 billion, a 1% increase [7][11]. - The company plans to accelerate store openings, targeting 1,600 to 1,800 new stores in 2025, with a capital expenditure of $700 million to $800 million [10][11]. Financial Performance - In Q4 2024, the company reported revenue of $2.595 billion, a 4% increase year-on-year, and a net profit of $115 million, up 19% year-on-year [5][11]. - The restaurant profit margin for 2024 was 15.7%, with Q4 margin at 12.3%, reflecting operational efficiency improvements [9][11]. - The company expects revenue growth rates of 4.6%, 6.3%, and 5.7% for 2025, 2026, and 2027, respectively, with net profit growth rates of 2.2%, 10.9%, and 12.4% [11][13]. Store Expansion and Innovation - The company aims to increase the proportion of franchise stores, targeting 40-50% for KFC and 20-30% for Pizza Hut in the coming years [10][11]. - Continuous innovation in menu offerings and business models is planned to expand market share [10][11]. Shareholder Returns - The company returned $1.5 billion to shareholders in 2024 and plans to return $3 billion from 2025 to 2026 [10][11].

Investment Rating - The report assigns a "Buy" rating for the company, marking its first coverage [2]. Core Insights - The company demonstrated stable operations with improved efficiency and resilience, achieving a revenue of $11.303 billion in 2024, a year-on-year increase of 3%, and a net profit of $911 million, up 10% year-on-year [5][11]. - The growth was primarily driven by store expansion, with a total of 16,395 stores by the end of 2024, contributing significantly to revenue growth [6][10]. - KFC outperformed Pizza Hut in terms of revenue growth, with KFC generating $8.509 billion, a 3% increase, while Pizza Hut's revenue was $2.260 billion, a 1% increase [7][11]. - The company plans to accelerate store openings, targeting 1,600 to 1,800 new stores in 2025, with a capital expenditure of $700 million to $800 million [10][11]. Summary by Sections Company Overview - The latest closing price is HKD 385.00, with a total market capitalization of HKD 1,448.39 billion and a debt-to-asset ratio of 42.21% [4]. Financial Performance - In Q4 2024, the company reported revenue of $2.595 billion, a 4% increase year-on-year, and a net profit of $115 million, up 19% year-on-year [5][6]. - The restaurant profit margin for 2024 was 15.7%, with Q4 showing a profit margin of 12.3%, an increase of 1.6 percentage points year-on-year [9][11]. Future Outlook - The company aims to reach 20,000 stores by 2026, with a focus on increasing the proportion of franchise stores [10]. - Shareholder returns are projected to be $1.5 billion in 2024 and $3 billion from 2025 to 2026 [10][11]. Earnings Forecast - Revenue growth is expected to be 4.6% in 2025, 6.3% in 2026, and 5.7% in 2027, with net profit growth of 2.2%, 10.9%, and 12.4% respectively [11][13].

Financial Performance - Total revenue grew by 3% to $11.3 billion, marking a new high since the spin-off; excluding foreign currency effects, revenue would have increased by 5%[6] - Total revenue for 2024 reached $11,303 million, a 3% increase from $10,978 million in 2023[28] - The company reported a total revenue of $900 million, representing a 10% increase year-over-year[34] - Total revenue for the company reached $11,911 million for the year ending December 31, 2024, with KFC and Pizza Hut contributing $8,509 million and $2,260 million, respectively[110] - Total revenue for 2023 was $10,978 million, an increase of 9% compared to $9,569 million in 2022[112] - Company restaurant revenue reached $10,391 million in 2023, up from $9,110 million in 2022, reflecting a growth of 14%[112] Profitability - Operating profit increased by 5% to $1.2 billion, with core operating profit up by 12%[6] - Net profit for 2024 was $911 million, up 10% from $827 million in 2023[28] - The company reported a net income of $150 million, a 12% increase compared to the last quarter[34] - Net profit for 2023 was $911 million, compared to $827 million in 2022, representing a year-over-year increase of 10%[116] - Basic earnings per diluted share grew by 18% to $2.33, a new annual high, or 22% excluding foreign currency effects[6] - Basic earnings per share (EPS) for 2023 was $2.34, up from $1.99 in 2022, indicating a growth of 18%[116] Store Expansion - System sales increased by 5% year-over-year, driven by a 7% contribution from net new stores, with same-store sales reaching 97% of last year's level[6] - Total store count increased by 12%, with a net addition of 1,751 stores, of which 512 were franchised, accounting for approximately 29% of net new stores[6] - As of December 31, 2024, Yum China operates 11,648 KFC stores in China, holding controlling interests of 58% to 92% in various regions[38] - As of December 31, 2024, there are 3,724 Pizza Hut restaurants in China, marking significant growth since its first opening in 1990[39] Digital and Delivery Growth - Delivery sales rose by 14%, maintaining a decade-long trend of double-digit annual growth, representing 39% of KFC and Pizza Hut restaurant revenue[6] - Digital order revenue reached $9.6 billion, accounting for approximately 90% of restaurant revenue[6] - KFC and Pizza Hut membership exceeded 525 million, an 11% increase year-over-year, with member sales accounting for 65% of total system sales[6] Shareholder Returns - Yum China plans to return $1.5 billion to shareholders in 2024, including $248 million in cash dividends and $1.24 billion in stock buybacks, equivalent to about 8% of shares outstanding as of December 31, 2023[6] - Total cash dividends paid to shareholders in 2024, 2023, and 2022 were $248 million, $216 million, and $202 million respectively[171] Tax and Audit Matters - The company is currently undergoing a transfer pricing audit by the State Taxation Administration of China, with a likelihood of over 50% that the tax status will be maintained[15] - The audit focuses on related party transactions from 2006 to 2015, assessing the effectiveness of internal controls related to uncertain tax positions[15] - The company has engaged tax professionals to assist in interpreting applicable tax laws and regulations, which is crucial given the complexity of tax laws[15] - The company is responsible for preparing consolidated financial statements that are free from material misstatement due to fraud or error, as per US GAAP and Hong Kong Companies Ordinance[18] Assets and Liabilities - Total assets decreased from $12,031 million in 2023 to $11,121 million in 2024, a decline of approximately 7.6%[33] - Total liabilities decreased from $4,912 million in 2023 to $4,694 million in 2024, a reduction of about 4.4%[33] - Shareholders' equity decreased from $7,106 million in 2023 to $6,414 million in 2024, a decline of approximately 9.7%[33] Capital Expenditures - Capital expenditures for 2024 totaled $705 million, slightly down from $710 million in 2023[32] - Capital expenditures for 2024 were $383 million for KFC and $111 million for Pizza Hut, showing an increase from $358 million and $113 million respectively in 2023[196] Impairment and Asset Management - The company recorded impairment charges of $18 million for restaurant-level assets as of December 31, 2024, reflecting a fair value of $51 million for those assets[145] - The company conducts impairment testing for each restaurant as an independent cash-generating unit, reviewing long-term assets every six months or when indicators suggest recoverability issues[61] Market Strategy and Future Outlook - The company plans to continue expanding its market presence and investing in new product development to drive future growth[28] - Market expansion plans include entering three new international markets by Q3 2024[34] - The company is considering strategic acquisitions to enhance its product portfolio, with a budget of $100 million allocated for this purpose[34] Membership and Loyalty Programs - The paid membership program offers various benefits, including free delivery and product discounts, with income recognized proportionally over the membership period[52] - The membership program allows registered members to earn points redeemable for discounts or free products, with estimated point values reducing revenue and recognized as deferred income[57] Financial Instruments and Fair Value - The fair value of financial instruments is determined based on market quotes or discounted cash flow models, incorporating various risk factors[71][74] - The company measures financial instruments at fair value and recognizes changes in fair value in the consolidated income statement[91] Retirement and Employee Benefits - The company provides retirement benefits through a defined contribution plan, with contributions ranging from 5% to 10% of base salary, and participants receive a lump sum upon leaving based on a percentage of the company's contributions[148] - The company has reserved 45 million shares for its long-term incentive plan initiated on October 31, 2016, with stock options and stock appreciation rights having an exercise price equal to or above the market fair value on the grant date[150]

Investment Rating - The report maintains a "Buy" rating for the company [1][4]. Core Insights - The company's same-store sales decline has narrowed, and store costs continue to optimize. The core operating profit for Q4 2024 exceeded expectations, with guidance for 2025 indicating that the core operating profit margin will remain at least flat or show positive year-on-year growth. The company maintains a robust shareholder return budget, which serves as a safety net for dividends [4]. - The company plans to open 1,600 to 1,800 new stores in 2025, with a total of 16,395 stores by the end of 2024, including 11,648 KFC and 3,724 Pizza Hut locations [5][4]. - The company reported Q4 2024 revenue of $2.6 billion, a year-on-year increase of 4%, and a net profit of $115 million, up 18% year-on-year. The core operating profit was $150 million, reflecting a 35% increase, driven by a decrease in personnel costs, property rents, and other operating costs [4]. Financial Projections - The company expects revenues of $11.84 billion, $12.71 billion, and $13.63 billion for 2025, 2026, and 2027, respectively, representing year-on-year growth rates of 4.7%, 7.4%, and 7.2% [6]. - The projected net profit for the same years is $976 million, $1.056 billion, and $1.139 billion, with growth rates of 7.1%, 8.2%, and 7.8% [6]. - The earnings per share (EPS) are forecasted to be $2.58, $2.87, and $3.18 for 2025, 2026, and 2027, respectively [6]. Operational Performance - KFC and Pizza Hut's restaurant operating profit margins for Q4 2024 were 13.3% and 9.3%, respectively, showing year-on-year increases of 1.3 and 2.0 percentage points [4]. - The same-store sales decline for KFC was 1% in Q4 2024, with transaction volume increasing by 3% and average ticket size decreasing by 4%. For Pizza Hut, the same-store sales decline was 2%, with transaction volume up 9% and average ticket size down 10% [4]. Shareholder Returns - The company returned $248 million to shareholders in Q4 2024, with a total of $1.5 billion for the year. The quarterly dividend increased by 50% to $0.24 per share, which will continue into 2025 [4].

Investment Rating - The report maintains a "Buy" rating for the company [1][4]. Core Insights - The company's same-store sales decline has narrowed, and store costs continue to optimize. The core operating profit for Q4 2024 exceeded expectations, with guidance for 2025 indicating that the core operating profit margin will remain at least flat or show positive year-on-year growth. The company maintains a robust shareholder return budget, providing a safety net for dividends [4]. - The company plans to open 1,600 to 1,800 new stores in 2025, with a total of 16,395 stores by the end of 2024, including 11,648 KFC and 3,724 Pizza Hut locations [5][4]. Financial Performance Summary - For Q4 2024, the company achieved revenue of $2.6 billion, a year-on-year increase of 4%. The net profit attributable to shareholders was $115 million, up 18% year-on-year, and core operating profit was $150 million, up 35% year-on-year [4]. - The company expects revenues of $11.84 billion, $12.71 billion, and $13.63 billion for 2025, 2026, and 2027, respectively, representing year-on-year growth of 4.7%, 7.4%, and 7.2%. The net profit attributable to shareholders is projected to be $976 million, $1.06 billion, and $1.14 billion for the same years, with growth rates of 7.1%, 8.2%, and 7.8% [6][4]. - The company’s earnings per share (EPS) are forecasted to be $2.58, $2.87, and $3.18 for 2025, 2026, and 2027, respectively [6]. Shareholder Returns - The company has maintained strong dividend and buyback efforts, with a total shareholder return of $1.5 billion for the year and a 50% increase in quarterly dividends to $0.24 per share for Q4 2024, which will continue into 2025 [4]. - The total shareholder return plan for 2025 and 2026 remains at $3 billion, representing 8.3% of the market capitalization of HKD 1,404 billion [4]. Store Performance - The operating profit margins for KFC and Pizza Hut in Q4 2024 were 13.3% and 9.3%, respectively, showing year-on-year increases of 1.3 and 2.0 percentage points [4]. - Same-store sales for KFC declined by 1% in Q4 2024, while Pizza Hut's same-store sales declined by 2%. However, transaction volumes increased by 3% and 9% for KFC and Pizza Hut, respectively [4].

Investment Rating - The investment rating for the company is "Buy" [9] Core Insights - Yum China is the largest restaurant company in China, with over 14,000 stores, significantly influencing the standardization of chain dining in the country over the past 30 years. The company has a highly professional organizational management and a relatively market-oriented ownership structure, with the parent company YUM granting substantial local authority [2][5] - The main brand supporting the company's performance is KFC, which has entered a mature development phase and is expanding its scale boundaries while maintaining a rapid store opening speed. Other brands like Pizza Hut, Taco Bell, and Lavazza are also in the process of iterative exploration [2][5] - The company's three core competitive advantages—digitalization, middle and back office efficiency, and localization—currently dominate the industry, ensuring stable performance for mature brands [7] Industry Analysis - The restaurant industry in China is a vast market with an annual revenue of approximately 5 trillion yuan, characterized by a highly fragmented structure. The top 100 restaurant companies account for only 7.7% of the total revenue. The industry maintained an annual growth rate of about 10% from 2015 to 2019, and as of 2023, monthly cumulative revenue has recovered to the levels of the same period in 2019 [14][23] - The fast food market, where KFC operates, is estimated to be around 1 trillion yuan, while the casual dining market is about 500 billion yuan. KFC holds a leading position in the fast food sector, with a market share of approximately 4.9% [17][21] - The competitive landscape is highly dispersed, with a low chain rate of less than 20% in Chinese dining compared to overseas markets. The CR5 (concentration ratio of the top five brands) in 2019 was about 3.1%, with Yum China holding around 1.4% [14][15] Financial Perspective - The company is expected to generate over 10 billion USD in revenue in 2024, with more than 90% coming from directly operated restaurants. The revenue growth rates for KFC from 2021 to 2024 are projected to be 20.31%, 3.08%, 14.14%, and 3.26% respectively [6] - The company's cost control is considered a benchmark in the industry, with strong supply chain capabilities ensuring stable core costs. It is anticipated that in normal years, the company can achieve a net profit margin of nearly 10% [6] Core Competitiveness - The company's digitalization efforts have established a strong brand presence with 400 million members, and ongoing investments in digital capabilities are expected to yield advantages in future algorithms [7] - The middle and back office operations are characterized by a smart, efficient, and agile supply chain that supports food safety, cost stabilization, and product innovation [7] - The localization strategy and brand strength have been embedded since the early management stages, allowing the company to maintain a competitive edge over its peers [7] Relative Valuation - The company's valuation has fluctuated significantly since its listing, initially receiving a 30X valuation in 2020, which increased to 50X in 2022 due to expectations of performance recovery. By 2023, the valuation returned to normal levels, reflecting a more stable growth outlook [8]

Investment Rating - The report assigns an "Accumulate" rating for the company, indicating a positive outlook based on its robust operational performance and expansion plans in lower-tier cities [5][8]. Core Insights - The company is positioned as a leading player in the Western fast-food sector in China, with a strong brand presence through its subsidiaries, including KFC and Pizza Hut. It aims to expand its store count to 20,000 by 2026, focusing on lower-tier cities to capture market share [7][10]. - The company has demonstrated strong operational cash flow and is committed to enhancing shareholder returns, with a target of $4.5 billion in shareholder returns from 2024 to 2026 [7][35]. - The report highlights the company's strategic focus on expanding its KFC and Pizza Hut brands, leveraging their established market presence and adapting to consumer preferences in lower-tier cities [10][30]. Summary by Sections Company Overview - The company, Yum China, has a rich history, being the first foreign fast-food brand to enter the Chinese market with KFC in 1987 and Pizza Hut in 1990. It operates multiple brands, including Taco Bell and Lavazza, and has a significant number of stores across various cities [19][21]. - The governance structure is market-oriented, with major shareholders being institutional investors, ensuring a clear and professional management approach [24][25]. Industry Analysis - The Western fast-food industry in China is characterized by high chain rates and market concentration, with significant growth potential in lower-tier cities. The market size is projected to reach 330 billion yuan by 2025 [42][44]. - Consumer preferences are shifting towards affordable dining options, with a notable increase in the frequency of visits to fast-food outlets, particularly in lower-tier cities [48][52]. Financial Forecast and Valuation - The company is expected to achieve revenues of $11.99 billion in 2025, with a projected net profit of $959.51 million, reflecting a growth rate of 5.3% [6][8]. - The current price-to-earnings (P/E) ratio is lower than that of comparable companies, indicating potential for valuation upside as the company expands its footprint in the fast-food sector [8][10].

Investment Rating - The investment rating for the company is "Buy" [6] Core Insights - The company reported a revenue of $11.303 billion for 2024, a year-on-year increase of 3%, and a net profit of $911 million, up 10% year-on-year. In Q4 2024, the revenue was $2.595 billion, reflecting a 4% year-on-year growth, with a net profit of $115 million, up 18% year-on-year [1][10] - The company continues to expand its store count, reaching a total of 16,395 stores by the end of 2024, with net additions of 1,751 stores for the year [2] - Same-store sales showed improvement, with a decline of only 1% in Q4 2024 compared to the same period last year, marking a continuous quarter-on-quarter improvement since Q2 2024 [3] - The company has seen significant growth in its delivery sales, which increased by 14% year-on-year in Q4 2024, and digital order revenue reached $9.6 billion, accounting for 90% of restaurant revenue [4] - The company plans to continue its store expansion, targeting an additional 1,600 to 1,800 new stores in 2025, with an increasing proportion of franchise stores [5][10] Financial Summary - For 2024, the company achieved a revenue of $11,303 million, with a year-on-year growth rate of 3% [11] - The projected revenues for 2025, 2026, and 2027 are $11,820 million, $12,655 million, and $13,639 million, respectively, with corresponding net profits of $937 million, $1,015 million, and $1,114 million [11] - The current price-to-earnings (P/E) ratios for 2025, 2026, and 2027 are projected to be 19.2x, 17.7x, and 16.2x, respectively [10][11]

Investment Rating - The report maintains a "Buy" rating for Yum China (YUMC.US/9987.HK) with a target price of $61.5, representing a potential upside of 27.1% from the current price of $48.4 [2][24]. Core Insights - Same-store sales performance is identified as a key factor influencing the company's 2025 earnings and stock price. The company anticipates a slight decline in same-store sales for 2024 due to adjustments in customer pricing to maintain steady traffic. However, operational efficiency improvements are expected to offset the negative leverage impact, allowing for slight margin expansion [1][4]. - The management's cautious outlook for 2025 reflects uncertainties in same-store performance, which is expected to significantly impact restaurant profit margins. The company aims for systematic revenue growth in the mid-single digits for 2025, with a target of opening 1,600-1,800 new stores [4][6]. - The competitive landscape is observed to be stabilizing, with some industry players reducing discounts and slightly increasing menu prices. Yum China plans to maintain stable pricing for KFC while lowering prices for Pizza Hut to attract more customers [4][11]. Financial Projections - Revenue projections for Yum China are as follows: - 2023: $10,978 million - 2024: $11,303 million (3.0% growth) - 2025: $11,720 million (3.7% growth) - 2026: $12,509 million (6.7% growth) - 2027: $13,281 million (6.2% growth) [6][9]. - Net profit estimates are projected as: - 2023: $827 million - 2024: $911 million (10.2% growth) - 2025: $924 million (1.4% growth) - 2026: $996 million (7.8% growth) - 2027: $1,099 million (10.4% growth) [6][9]. Market Performance - The current market capitalization of Yum China is approximately $18,253 million, with an average daily trading volume of $102.9 million over the past three months [2][4]. - The stock has traded within a 52-week range of $28.5 to $52.0, indicating significant volatility [2][4].

Investment Rating - The report maintains a "Buy" rating for Yum China (9987.HK / YUMC.US) and raises the target price to HKD 475.3, indicating a potential upside of 24% from the current stock price of HKD 382.8 [1][5]. Core Insights - Yum China's fourth-quarter total revenue increased by 4% year-on-year to USD 2.6 billion, with system sales also growing by 4%. Core operating profit surged by 36%, and net profit rose by 18% to USD 115 million, exceeding market expectations. For the full year, revenue reached USD 11.3 billion, a 3% increase, while net profit was USD 980 million, up 8.8% [1][2][5]. - The company has implemented efficiency improvement projects, such as Project Fresh Eye and Project Red Eye, which have started to yield positive results in operational efficiency and cost management [2][3]. Financial Performance Summary - In Q4, KFC's total revenue grew by 5% to USD 1.95 billion, with system sales also up by 5%. The core operating profit increased by 18%, and net profit was boosted by lower material costs and improved operational efficiency [3]. - Same-store sales saw a decline of 1%, but this was an improvement from a 3% decline in Q3. The total number of stores reached 16,400, a 12% increase year-on-year [2][4]. - The management expenses decreased, contributing to an increase in profit margins. The management expense ratio for Q4 was 6%, down 0.1 percentage points year-on-year [4]. Financial Projections - The report slightly raises the net profit estimates for 2025, 2026, and 2027 to USD 1.03 billion, USD 1.11 billion, and USD 1.15 billion, respectively, with corresponding EPS estimates of HKD 19.6, HKD 21.1, and HKD 21.9 [1][5]. - The projected revenue growth rates for the upcoming years are 6.57% for 2025, 6.15% for 2026, and 6.10% for 2027 [9]. Valuation Analysis - The report employs both comparable company analysis and DCF methods for valuation, concluding a target price of HKD 475.3 based on a 2025 PE of 24x and a DCF valuation suggesting a fair value of HKD 479.8 [13][17].