Core Viewpoint - Company maintains profit forecasts for Yum China (09987) with net profit estimates of $1.002 billion and $1.074 billion for 2026 and 2027 respectively, translating to EPS of $2.53, $2.77, and $2.97 for 2025-2027, with current stock price reflecting PE ratios of 17x, 16x, and 15x for the same periods, highlighting its strong digital and supply chain capabilities as a leading Western fast-food enterprise [1] Financial Performance - In Q3 2025, the company achieved revenue of $3.21 billion, a year-on-year increase of 4% (or 4% excluding foreign currency effects), with adjusted net profit of $282 million and core operating profit of $399 million, reflecting a core operating profit margin of 12.5%, up 0.4 percentage points year-on-year [2] Same-store Sales and Expansion - Same-store sales increased by 1% year-on-year in Q3 2025, with KFC and Pizza Hut showing growth of 2% and 1% respectively; KFC's same-store transaction volume rose by 3%, while Pizza Hut's increased by 17%, marking the eleventh consecutive quarter of growth for Pizza Hut [3] - The company opened 536 new stores in Q3 2025, bringing the total to 17,514 restaurants, with KFC and Pizza Hut netting 402 and 158 new locations respectively; the company aims to add 1,600-1,800 new stores in 2025 [3] Operational Efficiency - In Q3 2025, the proportion of food and packaging costs to restaurant revenue was 31.3%, benefiting from supply chain efficiency and lower raw material prices; labor costs accounted for 26.2% of revenue, up 1.1 percentage points year-on-year due to increased delivery business [4] - The overall restaurant profit margin improved to 17.3%, up 0.3 percentage points year-on-year, with KFC and Pizza Hut margins at 18.5% and 13.4% respectively [4] New Business Initiatives - The company has made significant progress with new business initiatives, including over 1,800 KFC coffee locations, more than 100 KPRO stores in high-tier cities, and 250 WOW stores for Pizza Hut, expanding into 40 new cities [5] Product Strategy - The company focuses on core products, limited-time offerings, and entry-level products to drive sales growth; KFC's new crispy chicken wings and Pizza Hut's hand-tossed pizzas have seen strong sales, with limited-time products like spicy beef dishes also performing well [6] - Entry-level products have achieved double-digit sales growth, with KFC exploring options for meals under $20 to attract a broader customer base [6]

Investment Rating - The report maintains a "Buy" rating for the company [7][5]. Core Views - The company reported strong same-store performance in Q2 2025, with operating profit exceeding expectations, showcasing resilience as a market leader [1][2]. - The company aims to open 1,600 to 1,800 new stores in 2025, with a focus on increasing the proportion of franchise stores [4][3]. - The target price is set at HKD 444.80 or USD 56.66, reflecting a slight adjustment in revenue and net profit forecasts for 2025-2027 [5][8]. Financial Performance - Q2 2025 revenue reached USD 2.787 billion, a year-over-year increase of 4%, while the first half of 2025 revenue was USD 5.768 billion, up 2% [1]. - Q2 operating profit was USD 304 million, a 14% increase year-over-year, with an operating margin of 10.9% [2][1]. - The company achieved a net profit of USD 215 million in Q2, with a net profit margin of 7.7% [1]. Store Expansion and Capital Expenditure - As of June 30, 2025, the company had 16,978 stores, with 336 new stores opened in the quarter, achieving the target for new franchise store openings [3][4]. - The capital expenditure per store has been optimized, with KFC and Pizza Hut's CAPEX reduced to USD 140,000 and USD 110,000-120,000 respectively [3][4]. Future Outlook - The company expects to maintain steady same-store sales growth in the second half of 2025, supported by cost structure optimization and ongoing store type iterations [1][4]. - The forecast for operating profit margin is a moderate increase for the full year, with expectations for improved free cash flow starting in 2025 due to reduced capital expenditures [4][5].