YUM CHINA HOLDINGS INC(9987.HK)3Q25 RESULTS：ANOTHER SOLID QUARTER

Core Viewpoint - YUMC reported a 4.4% year-over-year total revenue growth in 3Q25, with a 0.4 percentage point year-over-year operating profit margin (OPM) expansion, outperforming peers in the restaurant and catering sector [1] Group 1: 3Q Results Review - Total revenue for YUMC increased to US$3,206 million in 3Q25, aligning with expectations [1] - System sales (excluding foreign exchange effects) rose by 4.0% year-over-year, with same-store sales increasing by 1.0% year-over-year [1] - The pace of store openings accelerated, with net additions of 402 KFC and 154 PH stores in 3Q25, compared to 295 KFC and 99 PH in 2Q25 [1] - Franchise store format accounted for 41% of new KFC stores and 27% of new PH stores in the first nine months of 2025, indicating a strategic focus on leveraging franchisees [1] - Delivery sales contributions increased by 8 percentage points for KFC and 6 percentage points for PH year-over-year [1] - Restaurant margin slightly increased to 17.3%, with a cost ratio of food and paper at 31.3%, payroll at 26.2%, and occupancy at 25.2% [1] - General and administrative expenses remained flat year-over-year at 4.5%, reflecting disciplined cost control [1] - Operating profit margin rose to 12.5%, while investment loss narrowed to US$10 million in 3Q25 [1] - Reported shareholders' profit decreased by 5% year-over-year to US$282 million, in line with expectations [1] Group 2: Outlook - YUMC's long-term business strategy appears consistent, with an agile business model and positive feedback on new initiatives [2] - Strategic cooperation with franchisees is expected to enhance sales and improve free cash flow margins [2] - Same-store sales growth (SSSG) has been steady but may fluctuate due to the macroeconomic environment [2] - KFC and PH are anticipated to be less affected by delivery subsidy normalization in 2026 compared to other restaurant players [2] - Management targets a total capital return to shareholders of US$3.0 billion for 2025-26, equating to an average annual capital return of 8%-9% [2] - Average annual capital expenditure guidance remains at US$600-700 million from a long-term perspective [2] Group 3: Valuation - Topline forecasts for 2025-27 have been raised by 0.3%-0.8% due to accelerated store openings, particularly in franchise formats [3] - OPM forecasts have been slightly revised upward due to ongoing cost tailwinds and efficiency gains [3] - Earnings per share (EPS) is expected to grow at a 10% compound annual growth rate (CAGR) from 2024 to 2027, considering a 3% average annual decline in shares outstanding [3] - The BUY rating is maintained with a target price of HK$428.00 (US$54.90) for YUMC-H, representing a price-to-earnings ratio of 21.8x/19.2x for 2025-26 estimates [3]