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]

Financial Data and Key Metrics Changes - The company achieved record highs in revenue, operating profit, and operating profit margin for Q2 2025, with operating profit growing 14% to $304 million [10][31] - Same store sales growth turned positive at 1%, with system sales growth reaching 4%, showing a sequential improvement of two percentage points [9][28] - Restaurant margin improved by 60 basis points, and operating profit margin increased by 100 basis points year over year [10][31] Business Line Data and Key Metrics Changes - KFC achieved 5% system sales growth and a healthy restaurant margin, operating over 12,000 stores in more than 2,400 cities [10][11] - Pizza Hut sustained 2% same store sales growth, with a 17% increase in same store transactions, and improved margins through operational efficiency [11][24] - K Coffee Cafe contributed to incremental sales, with average cups sold increasing and a total of 1,300 locations nationwide [22][12] Market Data and Key Metrics Changes - Delivery sales accounted for around 45% of total sales mix, up from 38% in the previous year, driven by promotions and own channels [16][18] - The company opened 336 net new stores in Q2, with a total of 12,238 KFC stores and 3,864 Pizza Hut stores [21][26] - The franchise store mix for new openings was 41% for KFC and 26% for Pizza Hut, ahead of schedule [37] Company Strategy and Development Direction - The company is focused on operational efficiency and innovation, with initiatives like K Coffee Cafe and the Pizza Hut Wow model aimed at expanding market reach [47][68] - The company plans to achieve 1,600 to 1,800 net new store openings in 2025, with a solid pipeline for growth [37][36] - The company is committed to returning $3 billion to shareholders from 2025 through 2026, maintaining a healthy cash position of $2.8 billion [35][34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year targets for 2025 despite complex market conditions, with a focus on maintaining margins and protecting price integrity [36][47] - The company anticipates steady same store sales levels year over year in the second half, while facing challenges from delivery platform competition [38][56] - Management highlighted the importance of balancing sales growth with margin protection, learning from past experiences in competitive environments [120][121] Other Important Information - The company is raising its 2025 target for K Coffee Cafe locations from 1,500 to 1,700 due to strong performance [22] - The company is committed to digitization initiatives, including AI, to drive growth and efficiency [44][45] - The average annual capital return is around 8% to 9% of market cap, with flexibility regarding the split of capital returns between years [35] Q&A Session Summary Question: Insights on delivery business growth and margin impact - Management acknowledged intense competition in the delivery space but emphasized a balanced approach to drive top-line growth while protecting margins [53][55] Question: New format store opening targets and profitability - Management confirmed over 20 Wow stores opened, with encouraging sales and margin levels, but did not provide specific opening targets for the new model [66][71] Question: Potential ultimate goals for Pizza Hut's margins - Management indicated that mid to long-term improvements in Pizza Hut's margins are expected, with potential to reach levels closer to KFC [80][82] Question: Impact of delivery platform subsidies on margins - Management noted that larger brands like Yum China enjoy favorable subsidy arrangements, minimizing the impact on margins [87][89] Question: Changes in average check trends at KFC - Management explained that the average check at KFC was positively impacted by a higher delivery mix, but a downward trend is expected in the second half due to smaller orders [95][96] Question: CapEx guidance and future trends - Management lowered CapEx guidance due to reduced CapEx per store, indicating a stable trend for future years [100][105] Question: Franchise store opening decisions - Management clarified that franchise stores are incremental and strategically opened in lower-tier cities and high-traffic locations [110][111] Question: Competitive environment and margin preservation - Management reiterated the importance of maintaining price integrity and not sacrificing margins for sales growth amid competitive pressures [120][121]

Financial Data and Key Metrics Changes - In Q1 2025, the company achieved record highs in revenue, net income, and diluted EPS, with diluted EPS increasing by 10% year over year [6][25] - Same store sales index reached 100% of the prior year level for the first time since Q1 2024, with same store transactions growing for nine consecutive quarters [7][12] - Operating profit grew by 8% year over year, and restaurant margin expanded by 100 basis points [7][25] Business Line Data and Key Metrics Changes - KFC system sales grew by 3% year over year, with a restaurant margin of 19.8% and same store sales index at 100% of the prior year level [10][12] - Pizza Hut's system sales increased by 2% year over year, with same store sales index nearly at 100% and a significant 17% growth in same store transactions [15][16] - KFC opened 295 net new stores, bringing the total to 11,943, while Pizza Hut expanded to 3,769 stores with a net addition of 45 stores [11][18] Market Data and Key Metrics Changes - The company noted a complex and evolving market environment, with consumer spending remaining rational [28] - The delivery business for KFC grew by 13%, while Pizza Hut also achieved a 13% growth in delivery [76] - The company is strategically expanding into lower-tier cities with smaller store formats, which contributed to a 4% revenue growth from new units [21][89] Company Strategy and Development Direction - The company is focused on operational efficiency and innovation, with initiatives like Project Fresh Eye and Project Red Eye aimed at streamlining operations and enhancing customer experience [41][42] - KFC's K Coffee Cafe is expanding rapidly, with plans to reach 1,500 locations by the end of 2025, leveraging existing customer bases [38][100] - Pizza Hut is adopting a simpler and more efficient model to appeal to younger consumers and solo diners, with a focus on expanding its addressable market [40][41] Management's Comments on Operating Environment and Future Outlook - Management remains cautious about potential fluctuations in same store sales index but is optimistic about achieving ten consecutive quarters of positive same store transaction growth [29][62] - The company expects mid-single-digit system sales growth for the full year and plans to open 1,600 to 1,800 net new stores [29][88] - Management highlighted the importance of maintaining strong customer connections and adapting to changing consumer preferences [52][76] Other Important Information - The company plans to return $3 billion to shareholders from 2025 to 2026, in addition to $1.5 billion returned in 2024 [27] - The effective tax rate for the quarter was 27.8%, and net income was $292 million, growing 3% year over year [25][26] - The company is exploring optimization opportunities to offset cost increases in various areas, including occupancy and labor costs [34][66] Q&A Session Summary Question: Impact of competition and demand trends post-Q1 - Management noted that April performance was in line with expectations, with no significant negative impact observed so far, but they remain watchful of market conditions [50][51] Question: Pizza Hut's same store sales trajectory - Management indicated that while the market environment is evolving, they expect to maintain steady margins and reaffirmed guidance for mid-single-digit system sales growth [60][64] Question: Consumer environment in China and transaction growth at KFC - Management reported solid transaction growth at KFC and noted an increase in market share, particularly in the delivery business [74][76] Question: New store expansion and revenue growth - Management explained that while new store growth contributes to revenue, the smaller store format may lead to lower revenue per store initially, but payback periods remain healthy [86][90] Question: Long-term view on K Coffee - Management expressed commitment to the K Coffee business, highlighting its potential for top-line growth and profitability through shared resources [99][100] Question: Brand marketing strategies - Management emphasized the importance of staying relevant to consumer preferences and introduced new concepts like K PRO to cater to health-conscious consumers [106][108]

Financial Data and Key Metrics Changes - In Q1 2025, the company achieved record highs in revenue, net income, and diluted EPS, with diluted EPS increasing by 10% year over year [6][26] - Same store sales index reached 100% of the prior year level for the first time since Q1 2024, with same store transactions growing for nine consecutive quarters [7][12] - Operating profit grew by 8% year over year, and restaurant margin expanded by 100 basis points [7][26] Business Line Data and Key Metrics Changes - KFC system sales grew by 3% year over year, with restaurant margin expanding to 19.8% [9][13] - Pizza Hut system sales increased by 2% year over year, with same store sales index nearly reaching 100% of the prior year level and same store transactions growing by 17% [15][16] - KFC opened 295 net new stores, bringing the total to 11,943, while Pizza Hut expanded to 3,769 stores with a net addition of 45 stores [11][18] Market Data and Key Metrics Changes - The company noted a complex and evolving consumer environment, with rational spending patterns observed among consumers [29][50] - Delivery business for KFC grew by 13%, while Pizza Hut also achieved a 13% increase in delivery sales [72] Company Strategy and Development Direction - The company is focused on operational efficiency and innovation, with initiatives like Project Fresh Eye and Project Red Eye aimed at streamlining operations and enhancing customer experience [41][42] - KFC is expanding its K Coffee business, targeting 1,500 locations by the end of 2025, while Pizza Hut is introducing new store models to capture additional market share [38][40] - The company aims to maintain or slightly improve core operating profit margins for the full year [31][60] Management's Comments on Operating Environment and Future Outlook - Management remains cautious about potential fluctuations in same store sales index but reiterates guidance for mid-single digit system sales growth for 2025 [30][60] - The company is adapting to competitive pressures, particularly from delivery aggregators, while maintaining strong control over its business [52][53] Other Important Information - The company plans to return $3 billion to shareholders from 2025 to 2026, in addition to $1.5 billion returned in 2024 [28] - The effective tax rate for the quarter was 27.8%, which is 90 basis points higher year over year [26] Q&A Session Summary Question: Impact of competition and demand trends post-Q1 - Management noted that April performance was in line with expectations, with no significant negative impact observed so far, but they remain watchful of market conditions [49][50] Question: Same store sales trajectory for Pizza Hut - Management indicated that while they strive for ten consecutive quarters of positive transaction growth, they remain cautious about potential fluctuations in same store sales index [58][60] Question: Consumer environment in China and transaction growth at KFC - Management reported solid transaction growth at KFC, with a 4% increase in Q1, and noted that they are capturing market share, particularly in the delivery business [70][73] Question: New store expansion and revenue growth - Management confirmed that while new store growth is contributing to revenue, the mix shift towards smaller stores may limit revenue growth from new stores in the near term [81][84] Question: Long-term view on K Coffee - Management expressed commitment to the K Coffee business, highlighting its potential for top line growth and profitability due to shared resources with KFC [93][96] Question: Brand marketing strategies - Management emphasized their focus on staying relevant to consumer preferences and introducing healthier options through new concepts like K PRO [100][102]