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 940 million, and 352.75, leading to a "Buy" rating [1]
百胜中国：ROE解析系列：快餐龙头穿越周期，长期价值凸显