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Some China Overhang Looming, but More Visibility Potentially on the Horizon
China Securities·2025-02-16 15:28

Summary of Restaurant Brands International Conference Call Company Overview - Company: Restaurant Brands International, Inc. (Ticker: QSR) - Industry: Quick-Service Restaurants (QSR) - Market Cap: 30billion−∗∗SystemSales∗∗:Over30 billion - **System Sales**: Over 40 billion with more than 30,000 restaurants globally [20][21] Key Points and Arguments Financial Performance - 4Q Sales & EBITDA: Approximately inline with expectations despite mixed same-store sales (SSS) and unit performance, with potential upside to company margins and lower general & administrative (G&A) expenses offset by lower international franchise margins due to bad debt [1] - Tim Hortons Canada SSS: Reported at 2.5%, slightly below consensus of 2.7%, but positive traffic remains encouraging, particularly in breakfast and afternoon segments [2] - Burger King (BK) and Popeyes (PLK) SSS: BK US SSS at 1.5% vs. consensus of 1.2%, while PLK US SSS at 0.1% vs. consensus of -0.7%, benefiting from value offerings [3] Growth and Development - Global Development: Company added 600 net new units, with Tim Hortons showing strong growth while international openings, particularly at BK, were soft. Uncertainty remains regarding unit growth in China due to pending franchisee issues [4] - Unit Growth Estimates: Adjusted 2025/2026 unit growth estimates to 3.8% and 4.8% respectively, down from previous estimates [5] Earnings Estimates - EBITDA Estimates: Lowered 2025/2026 EBITDA estimates due to lower unit growth and SSS, alongside foreign exchange headwinds [5] - Price Target: Maintained a price target of 67basedon15x2025EBITDA,reflectingabalancedrisk/rewardprofile[11][21]MarketConditionsandRisks−∗∗DomesticBackdrop∗∗:Remainschallenging,butmultipledriversandpotentialtailwindscouldoffsetrisksthrough2025[5]−∗∗ChinaMarketRisks∗∗:OngoingchallengesinChinacouldimpactthecompany′slong−termgrowthtrajectory,withareturnto567 based on 15x 2025 EBITDA, reflecting a balanced risk/reward profile [11][21] Market Conditions and Risks - **Domestic Backdrop**: Remains challenging, but multiple drivers and potential tailwinds could offset risks through 2025 [5] - **China Market Risks**: Ongoing challenges in China could impact the company's long-term growth trajectory, with a return to 5% growth potentially delayed beyond 2026 [4][5] Sustainability and Operational Focus - **Sustainability Goals**: Company aims to recycle guest packaging globally by 2025 and reduce Scope 1 & 2 emissions by 50% by 2030, with a target of net zero by 2050 [15] - **Operational Improvements**: Focus on enhancing drive-thru times and overall guest experience, with new initiatives in service speed and product innovation [2][14] Analyst Insights - **Investment Thesis**: While optimistic about long-term competitive positioning and unit growth potential, the path to recovery is slower than expected, leading to a hold recommendation [11][21] - **SSS Drivers**: Key drivers include investments in BK, product innovation, and effective marketing strategies across all brands [15] Additional Important Information - **Earnings Projections**: Adjusted EPS for 2025 projected at 3.74, with a range of scenarios indicating potential upside to 78ordownsideto78 or downside to 57 based on SSS performance [13] - Market Trends: Broader trends in SSS and unit growth will significantly influence the company's performance and valuation moving forward [21] This summary encapsulates the critical insights from the conference call, highlighting the financial performance, growth strategies, market conditions, and sustainability initiatives of Restaurant Brands International.