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]
百胜中国：第二季度一流的成本管理