24 February 2026 | 11:40PM HKT Equity Research China Restaurants: Look for an improving market backdrop in 2026E; 2H25 earnings preview Following a solid earnings beat for YUMC for 4Q25 result, we expect major restaurant companies (Guming, Mixue, Haidilao) in our coverage to report better than our earlier expected earnings for 2025. In this note, we update industry forecast and provide earnings preview/updated 2026-27E earnings outlook on Guming (Buy, on CL, revise up earnings outlook and TP), MIXUE (Buy) a ...

Investment Rating - The report indicates a stable investment environment for the restaurant sector, with a focus on brand value growth and resilience despite economic pressures [20][23]. Core Insights - The global restaurant sector's brand value reached a record $190.1 billion in 2026, with McDonald's leading at $42.6 billion, marking a 5% increase [10][30]. - Chick-fil-A emerged as the fastest-growing brand, with a 44% increase in brand value to $8.1 billion, driven by strong revenue and expansion [36]. - Haidilao retained its title as the strongest brand with a Brand Strength Index (BSI) score of 89.5/100, despite a slight decline in its score [49]. Sector Overview - The restaurant sector has shown resilience, with a collective brand value increase of approximately 20% since 2015, driven by changing consumer habits towards takeout and delivery [20][21]. - Technology investments, including AI-enabled forecasting and digital ordering, have become essential for growth, particularly in the US market [22]. - There is a noted disconnect between brand value growth and Brand Strength Index scores, indicating pressures on pricing and consumer trust [23]. Valuation Analysis - The top 10 restaurant brands remain stable, with minor shifts in rankings based on brand value growth rates rather than fundamental changes in competitive positions [25][34]. - McDonald's, Starbucks, and KFC maintain their top three positions, with brand values of $42.6 billion, $37 billion, and $16.5 billion respectively [30][31]. - Subway and Chick-fil-A showed significant growth, with Subway's brand value increasing by 18% and Chick-fil-A's by 44% [28][36]. Brand Strength Analysis - Haidilao is recognized as the strongest restaurant brand globally, followed closely by Greggs and McDonald's, with BSI scores of 89.5, 88.2, and 88.1 respectively [52][54]. - The report highlights the importance of local relevance and consumer perceptions in driving brand strength, as seen with Jollibee's performance in the Philippines [58]. Sustainability Analysis - Sustainability is increasingly influencing consumer choices, contributing to 6.4% of consideration in the restaurant sector [64]. - Brands like Chili's and Mixue are noted for their strong sustainability perceptions, which are linked to higher quality and credibility among consumers [65]. Brand Value Ranking - The report lists the top 10 most valuable restaurant brands for 2026, with McDonald's, Starbucks, and KFC leading the rankings [30][71]. - Notable newcomers include Mixue, valued at $4.6 billion, reflecting a strong focus on affordability and rapid expansion [44].

Core Insights - Yum! Brands is conducting a strategic review of Pizza Hut, which may include selling the brand due to declining same-store sales [1][1] - The company plans to close 250 out of 20,000 U.S. Pizza Hut locations in the first half of the year as part of this review [1][1] - Pizza Hut's core operating profit is projected to decline by 15% in the first quarter as Yum! Brands invests in marketing and other initiatives to boost sales [1][1] Financial Performance - Yum! Brands reported $2.5 billion in revenue, a 6% increase year-over-year, slightly below analyst expectations [1][1] - Adjusted earnings per share were approximately $1.73, aligning with consensus estimates [1][1] Market Context - Increased competition and consumer demand for value offerings have negatively impacted Pizza Hut's sales, which saw a 3% year-over-year decline in domestic same-store sales in the fourth quarter [1][1] - The brand experienced prior declines of 6% and 5% in same-store sales in earlier quarters of the year [1][1]

Group 1 - Pizza Hut will close approximately 3% of its U.S. locations, equating to around 250 stores, in the first half of 2026 due to underperformance and competition from Domino's Pizza [1] - In contrast, Taco Bell and KFC reported strong sales growth, with Taco Bell's same-store sales increasing by 7% for the quarter and KFC achieving a 1% increase while opening its 30,000th international restaurant [4] - Yum Brands reported fourth-quarter revenue of $2.51 billion, surpassing expectations of $2.45 billion, although it missed earnings per share (EPS) estimates, reporting $1.73 adjusted compared to the expected $1.77 [3] Group 2 - The company opened over 440 new Pizza Hut restaurants globally in the fourth quarter of 2025 and nearly 1,200 in total for the year across 65 countries [2] - CEO Chris Turner highlighted the strong fundamentals at KFC and Taco Bell, emphasizing a strategic focus on long-term growth through the "Raise the Bar" initiative [5] - Shares of Yum Brands experienced a slight decline of less than 1% in afternoon trading but have increased by 6% year-to-date [5]

Core Insights - Pizza Hut is closing 250 locations, representing about 3% of its US footprint, as part of a strategic review by its parent company, Yum! Brands, which may consider selling the chain in the future [1][2] - The closures are part of a turnaround strategy named "Hut Forward," which includes marketing investments and technology upgrades [2] - Pizza Hut has faced challenges in competing with rivals like Domino's, with a 5% drop in US same-store sales in 2025 and a 3% decline in the fourth quarter, indicating that turnaround efforts have not yet been effective [3][6] Company Performance - Taco Bell has shown strong performance with a 7% increase in US same-store sales in the fourth quarter, attributed to new menu items appealing to a diverse customer base [6] - KFC has also shown signs of improvement, with a 1% increase in US same-store sales in the fourth quarter, as it attempts to catch up with competitors [6][7]

Core Insights - Yum! Brands, Inc. reported mixed quarterly results with earnings falling short of expectations despite an increase in revenue [1] - Strength in Taco Bell and KFC contributed to systemwide growth and unit expansion, although restaurant margins decreased year over year [1] Quarterly Metrics - Worldwide system sales increased by 5% excluding currency impacts and the extra 53rd week comparison, driven by Taco Bell's 8% growth and KFC's 6% growth [2] - Operating profit for the quarter was $738 million, up from $657 million a year ago, while the company restaurant margin decreased to 16% from 17.9% year over year [2] Unit Expansion - The company opened 1,814 gross new units, achieving a year-over-year unit growth of 3%, with digital system sales exceeding $11 billion, accounting for nearly 60% of total sales [3] - KFC Division opened 1,132 new restaurants, while Taco Bell Division added 228 new restaurants during the quarter [3] - Yum! Brands ended the quarter with cash and equivalents totaling $709 million [3] Management Commentary - The CFO highlighted strong topline results, double-digit profit growth, a significant Taco Bell store acquisition, and a strategic review for the Pizza Hut brand, expressing optimism for growth opportunities ahead [4] Dividend Announcement - The company approved a dividend of 75 cents per share, marking a 6% increase, with distribution scheduled for March 6 [5] Long-term Outlook - Yum! Brands reaffirmed its long-term growth targets, aiming for 5% unit growth and 7% system sales growth, excluding foreign exchange, along with an average core operating profit growth of at least 8% over time [6]

Core Viewpoint - Sysco Corporation reported strong second-quarter fiscal 2026 results, with adjusted earnings per share exceeding analyst expectations, leading to a rise in stock price [1][6]. Quarterly Metrics - Quarterly sales reached $20.762 billion, reflecting a 3.0% year-over-year increase and closely aligning with analyst expectations of $20.767 billion [2]. - U.S. Foodservice volume increased by 0.8%, while U.S. local volumes grew by 1.2% [2]. - Operating income decreased by 2.8% to $692 million, while adjusted operating income increased by 3.1% to $807 million [3]. - EBITDA fell by 0.9% to $923 million, whereas adjusted EBITDA rose by 3.3% to $1.0 billion [3]. - The company reported a cash balance of $1.2 billion and total liquidity of $2.9 billion at the end of the quarter [4]. Outlook - Sysco expects fiscal 2026 adjusted EPS growth to be at the high end of the previously provided guidance range of $4.50-$4.60, aligning with long-term financial targets [5]. - The company anticipates adjusted EPS growth at the high end of its 5% to 7% long-term target, excluding a $100 million headwind from lower incentive compensation in fiscal 2025 [6]. - Sysco shares increased by 7.36% to $81.20 following the earnings report [6].

Core Viewpoint - Krispy Kreme is undergoing a significant turnaround plan focused on profitability, refranchising, and improving operational efficiency after exiting unprofitable partnerships, notably with McDonald's [2][7][23]. Group 1: Turnaround Strategy - The company has launched a turnaround plan aimed at boosting profitability, reducing leverage, and improving cash flow, with a focus on sustainable income streams [4][6][24]. - Krispy Kreme ended its partnership with McDonald's due to unprofitability and is now concentrating on profitable channels and refranchising efforts, particularly in international markets [2][7][23]. - The company is actively refranchising its operations in Japan and exploring similar opportunities in other markets like the U.K., Australia, and Mexico to enhance operational efficiency [9][16]. Group 2: Financial Performance - The third-quarter results showed positive trends, with higher adjusted EBITDA and a focus on generating positive cash flow to pay down debt [4][24]. - The company has stopped delivery operations in 1,400 locations that were not profitable while still adding new profitable ones, demonstrating a decisive approach to cost management [23]. - The goal for 2026 is to stabilize operations and show continuous improvement in EBITDA and cash flows, with a potential shift to long-term growth strategies in 2027 [25][26]. Group 3: Operational Efficiency - Krispy Kreme is outsourcing logistics to improve delivery efficiency and reduce costs, allowing the company to focus on its core competencies in doughnut production and retail [13][15]. - The company maintains strict quality control over its doughnut production process, ensuring consistency across international markets by using a concentrated mix from its North Carolina facilities [19][20][21]. - The brand is leveraging excess doughnut capacity in the U.S. to avoid the need for new shop openings domestically, focusing instead on expanding through established franchise partners internationally [10][11].

Core Insights - Fried chicken dining chains led the fast-food industry in 2025, with a 3% increase in traffic, while overall fast-food concepts saw a 1% decline [1] - Chicken concepts experienced a 4.3% growth in 2024, outperforming other quick-service and fast-casual chains [2] - Industry expert Reilly Newman indicated that chicken chains like Chick-fil-A and KFC are likely to maintain their dominance due to the experiential offerings and customization options available [3] Industry Performance - Chicken fast-food chains have shown resilience in traffic growth, with a 3% increase in 2025 and a 4.3% increase in 2024, contrasting with declines in other fast-food segments [1][2] - Despite the growth in customer traffic, financial difficulties have led to bankruptcy filings among some chicken chains [4] Bankruptcy Filings - Southern Classic Chicken, a franchisee in Woodstock, Georgia, filed for Chapter 11 bankruptcy on November 3, 2025, to reorganize its business [5] - De'nsite Inc., operator of Harold's Chicken locations in Illinois, filed for Subchapter V bankruptcy on July 27, 2025, with assets up to $50,000 and liabilities between $500,000 and $1 million [7] - Sailormen Inc., a franchisee of Popeyes Louisiana Kitchen, filed for Chapter 11 protection due to financial distress from failed sales, credit defaults, and lawsuits [8]

Core Insights - VCI Global Limited has announced the onboarding of its first enterprise asset supply partner for its Real World Asset (RWA) Exchange, collaborating with Mezzofy Holding Limited, a digital voucher platform with over US$8 billion in voucher transactions facilitated [1][11]. Group 1: Collaboration and Ecosystem - The partnership with Mezzofy integrates high-frequency consumer commerce assets into VCI Global's RWA Exchange, creating a scalable pipeline for compliant tokenization and exchange of merchant-issued, redeemable assets [2]. - Mezzofy's merchant ecosystem includes major brands like Starbucks, Pizza Hut, and KFC, providing immediate real-economy asset depth supported by active consumer demand [3]. Group 2: Infrastructure and Execution - Smart Bridge Technologies Limited, VCI Global's RWA infrastructure arm, will facilitate the tokenization, settlement, and exchange of authorized merchant vouchers and coupons, converting everyday consumer value into tradable Real-World Assets [3][4]. - The collaboration signifies a shift from platform development to enterprise execution, establishing a repeatable model for onboarding RWAs onto the Exchange [4]. Group 3: Market Potential and Strategy - Consumer vouchers are identified as a high-velocity asset class, with constant issuance and redemption, allowing VCI Global to bridge traditional commerce with the emerging RWA economy [5]. - The planned Exchange aims to expand beyond vouchers into additional enterprise and institutional RWAs, utilizing the same compliance and settlement frameworks [6]. Group 4: Integration with Digital Economy - VCI Global's RWA Exchange will incorporate stablecoin settlement and digital payment systems, enabling tokenized consumer assets to operate seamlessly across traditional and digital economies [7].