YUM CHINA(US:YUMC) SPDB International·2026-02-10 10:20Investment Rating - The report maintains a "Buy" rating for Yum China (YUMC.US/9987.HK) based on strong fundamentals, solid performance, and a focus on shareholder returns [1]. Core Insights - The report highlights a significant improvement in market sentiment and potential sales recovery, which may help profit margins exceed market expectations [1]. - In Q4 2025, same-store sales growth and operating profit margins significantly surpassed market expectations, with a 25% year-on-year increase in operating profit [14]. - Management observed a positive trend in short-term sales and has slightly increased delivery prices to alleviate rising delivery costs [1][7]. - The company aims for a modest same-store sales growth of 0-2% in 2026, aligning with its long-term growth targets [7]. Financial Performance Summary - Q4 2025 same-store sales grew by 3% year-on-year, with KFC achieving a 3% increase and Pizza Hut a 1% increase [15]. - System sales (excluding FX) increased by 7% year-on-year in Q4 2025, driven by same-store sales growth and rapid store expansion [14]. - The company reported a net profit of $153 million in Q4 2025, a 21.4% increase year-on-year, with a cash dividend of $0.29 per share, up 21% from the previous quarter [14][15]. - For 2026, the company expects to add 1,900 new stores, with a capital expenditure of $600-700 million [17]. Financial Projections - Revenue projections for 2026 are estimated at $12.594 billion, reflecting a 6.8% year-on-year growth [9]. - The net profit for 2026 is projected to be $1.014 billion, a 9.2% increase from 2025 [11]. - The report anticipates a continued decline in raw material costs, although the rate of decrease is expected to slow [7]. Market Valuation - The target price for Yum China is set at $64.8, representing an upside potential of 11.8% from the current price of $57.95 [2]. - The report indicates a market capitalization of $19.723 billion for Yum China [2].