China and US Equity Analyst

Roger Xie

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/yum-china-holdings-inc" target="_blank" data-smartkarma-citation="entities:23677:1" rel="noopener">Yum China Holdings, Inc (YUMC US)</a> maintains its wide moat in attractive China restaurant industry. It consistently demonstrates the leading positions in strong branding, wholly-owned supply chain and distribution system. We estimate that air travel and tourism have recovered 90% and 80% respectively to pre-COVID level in China, which is a positive sign for Yum China. The fast-food chain has stated its same-store sale has recovered to 94% of prior year in 3Q20. </li>
<li>Total store units for Yum China has exceeded 10,000 in 3Q20, which was perceived as a milestone. With the newly raised capital from its Hong Kong secondary listing, Yum China management has ambitious target to add another 10,000 new store units within a shorter time span. We expect the new store expansion will accelerate in 2021. The management has also revised up the new store units to 900 from 800-850 in 2020. The company is adapting new stores to smaller sizes with lower capex in the context of increasing popularity of delivery and takeaways, new stores in a lighter model could also facilitate better operational efficiencies and store payback.</li>
<li>Yum China delivered a strong 3Q20 result and beat consensus estimate. Its 3Q20 sales/adjusted earnings were up 1%/17% year-over-year (vs. down 7%/31% in 2Q20). Same-Store-Sale Growth for both KFC and PH came in slightly better than consensus, margins are also better with operation optimization. We raised <a href="https://www.smartkarma.com/entities/yum-china-holdings-inc" target="_blank" data-smartkarma-citation="entities:23677:1" rel="noopener">Yum China Holdings, Inc (YUMC US)</a> TP to US$68 given its leading positions in menu simplification, alternative restaurant formats, and enhanced digital marketing efforts. The TP is based on 28x 2021e P/E. </li>
</ul>



Yum China Holdings, Inc (YUMC US) maintains its wide moat in attractive China restaurant industry. It consistently demonstrates the leading positions in strong branding, wholly-owned supply chain and distribution system. We estimate that air travel and tourism have recovered 90% and 80% respectively to pre-COVID level in China, which is a positive sign for Yum China. The fast-food chain has stated its same-store sale has recovered to 94% of prior year in 3Q20. 
Total store units for Yum China has exceeded 10,000 in 3Q20, which was perceived as a milestone. With the newly raised capital from its Hong Kong secondary listing, Yum China management has ambitious target to add another 10,000 new store units within a shorter time span. We expect the new store expansion will accelerate in 2021. The management has also revised up the new store units to 900 from 800-850 in 2020. The company is adapting new stores to smaller sizes with lower capex in the context of increasing popularity of delivery and takeaways, new stores in a lighter model could also facilitate better operational efficiencies and store payback.
Yum China delivered a strong 3Q20 result and beat consensus estimate. Its 3Q20 sales/adjusted earnings were up 1%/17% year-over-year (vs. down 7%/31% in 2Q20). Same-Store-Sale Growth for both KFC and PH came in slightly better than consensus, margins are also better with operation optimization. We raised Yum China Holdings, Inc (YUMC US) TP to US$68 given its leading positions in menu simplification, alternative restaurant formats, and enhanced digital marketing efforts. The TP is based on 28x 2021e P/E. 


Yum China (YUMC and 9987.HK): Store Units Exceeding 10,000, Looking to Accelerate Expansion in 2021

<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> September ADT (Average Daily Turnover) remain strong. This in in contrast to usual weak seasonality in trading activities into Q4. For the first 9 months this year, HKEx ADT has reaccelerated the year-over-year growth rate to 38.9% , fueled by  IPO listings and investors' sanguine view on China. </li>
<li>HKEx had a busy month for the IPO market with 9 new listings in September. The most noticeable IPOs are <a href="https://www.smartkarma.com/entities/nongfu-spring" target="_blank" data-smartkarma-citation="entities:28955:1" rel="noopener">Nongfu Spring (9633 HK), </a><a href="https://www.smartkarma.com/entities/yum-china-holdings-inc-0533692c-6dae-4014-baa1-ed0b050638f2" target="_blank" data-smartkarma-citation="entities:29259:1" rel="noopener">Yum China Holdings Inc (9987 HK),</a><a href="https://www.smartkarma.com/entities/ming-yuan-cloud-group" target="_blank" data-smartkarma-citation="entities:29268:1" rel="noopener">Ming Yuan Cloud Group (909 HK)</a>, and <a href="https://www.smartkarma.com/entities/joy-spreader-interactive-technology" target="_blank" data-smartkarma-citation="entities:29271:1" rel="noopener">Joy Spreader Interactive Technology (6988 HK).</a> We expect mega IPO and Chinese ADR homecoming to reshape the landscape of Hong Kong capital market. And Ant Group has just won approval from the China Securities Regulatory Commission (CSRC) for its blockbuster initial public offering in Hong Kong.</li>
<li>Derivative volumes improved 19% quarter-over-quarter in 3Q, on the back of Heng Seng Index and China Enterprises Index futures. We expect volume will be boosted by MSCI suite of products and reach critical mass in the next 12 months. A-share futures should be the most important driver of HKEx derivative volume. We estimate that MSCI China A-share future could contribute additional 6% revenue for <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> after its launch. We remain bullish on <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> and reiterate TP of HKD 400. </li>
</ul>



HKEX (388 HK) September ADT (Average Daily Turnover) remain strong. This in in contrast to usual weak seasonality in trading activities into Q4. For the first 9 months this year, HKEx ADT has reaccelerated the year-over-year growth rate to 38.9% , fueled by  IPO listings and investors' sanguine view on China. 
HKEx had a busy month for the IPO market with 9 new listings in September. The most noticeable IPOs are Nongfu Spring (9633 HK), Yum China Holdings Inc (9987 HK),Ming Yuan Cloud Group (909 HK), and Joy Spreader Interactive Technology (6988 HK). We expect mega IPO and Chinese ADR homecoming to reshape the landscape of Hong Kong capital market. And Ant Group has just won approval from the China Securities Regulatory Commission (CSRC) for its blockbuster initial public offering in Hong Kong.
Derivative volumes improved 19% quarter-over-quarter in 3Q, on the back of Heng Seng Index and China Enterprises Index futures. We expect volume will be boosted by MSCI suite of products and reach critical mass in the next 12 months. A-share futures should be the most important driver of HKEx derivative volume. We estimate that MSCI China A-share future could contribute additional 6% revenue for HKEX (388 HK) after its launch. We remain bullish on HKEX (388 HK) and reiterate TP of HKD 400. 


HKEx (388.HK): September Trading Volume Indicated Strong Activities Trend into Q4

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/miniso-group-holdings" target="_blank" data-smartkarma-citation="entities:29673:1" rel="noopener">MINISO Group Holdings (MNSO US)</a> is the leading variety retailer of lifestyle products globally with an aggregate GMV of RMB 19.0 billion (US$2.7 billion) and revenue of RMB 9.0 billion (US$1.3 billion).</p><p>Previously, we discussed MINISO's business model, financials and valuation in <a href="https://www.smartkarma.com/insights/miniso-ipo-long-term-growth-prospects-secured-by-a-sustainable-competitive-advantage" target="_blank" rel="noopener">MINISO IPO: Long Term Growth Prospects Secured By a Sustainable Competitive Advantage</a>, <a href="https://www.smartkarma.com/insights/miniso-ipo-as-appealing-as-miniso-products" target="_blank" rel="noopener">MINISO IPO: As Appealing As MINISO Products</a> and <a href="https://www.smartkarma.com/insights/miniso-valuation-valued-like-miniso-merchandise-bang-for-the-buck" target="_blank" rel="noopener">MINISO Valuation: Valued Like MINISO Merchandise - Bang for the Buck</a>.</p><p>Our relative valuation indicated that there is significant upside, even at the higher end of the IPO price range. MINISO lacks directly comparable peers, hence an exhaustive relative valuation exercise may not be as reliable as we would have hoped.</p><p>Therefore, we feel it is worth exploring other valuation techniques to make sure that we don’t run into unpleasant surprises.</p>

MINISO Group Holdings (MNSO US) is the leading variety retailer of lifestyle products globally with an aggregate GMV of RMB 19.0 billion (US$2.7 billion) and revenue of RMB 9.0 billion (US$1.3 billion).Previously, we discussed MINISO's business model, financials and valuation in MINISO IPO: Long Term Growth Prospects Secured By a Sustainable Competitive Advantage, MINISO IPO: As Appealing As MINISO Products and MINISO Valuation: Valued Like MINISO Merchandise - Bang for the Buck.Our relative valuation indicated that there is significant upside, even at the higher end of the IPO price range. MINISO lacks directly comparable peers, hence an exhaustive relative valuation exercise may not be as reliable as we would have hoped.Therefore, we feel it is worth exploring other valuation techniques to make sure that we don’t run into unpleasant surprises.

MINISO Deserves More Than The IPO Valuation

<ul>
<li>The successful Hong Kong secondary listing could help <a href="https://www.smartkarma.com/entities/yum-china-holdings-inc" target="_blank" data-smartkarma-citation="entities:23677:1" rel="noopener">Yum China Holdings, Inc (YUMC US)</a> accelerate its strategic expansion plan. According to the management, Yum China plans to allocate the net proceeds as follows: 45% to expand and deepen its restaurant network; 45% to invest in digitalization and supply chain, food innovation; 10% for working capital and general corporate purposes.</li>
<li>Yum China has been accelerating its store expansion plan in the past few years, especially on the KFC brand. Management guided 800-850 gross store openings in 2020E. In addition, store remodeling has been aggressive to further enhance the dining experiences. </li>
<li>We view Yum China with wide moat based on its strong branding in China; a wholly owned supply chain; and advanced digital platform. We have TP $64 for YUMC, which implies  25% upside in next 6-12 month with improving fundamentals. TP is based on 28x 2021e P/E. </li>
</ul>


The successful Hong Kong secondary listing could help Yum China Holdings, Inc (YUMC US) accelerate its strategic expansion plan. According to the management, Yum China plans to allocate the net proceeds as follows: 45% to expand and deepen its restaurant network; 45% to invest in digitalization and supply chain, food innovation; 10% for working capital and general corporate purposes.
Yum China has been accelerating its store expansion plan in the past few years, especially on the KFC brand. Management guided 800-850 gross store openings in 2020E. In addition, store remodeling has been aggressive to further enhance the dining experiences. 
We view Yum China with wide moat based on its strong branding in China; a wholly owned supply chain; and advanced digital platform. We have TP $64 for YUMC, which implies  25% upside in next 6-12 month with improving fundamentals. TP is based on 28x 2021e P/E. 


Yum China (YUMC and 9987.HK) Will Accelerate to Gain Market Shared Post COVID-19

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<div><p><a href="https://www.smartkarma.com/entities/huazhu-group-ltd" target="_blank" data-smartkarma-citation="entities:17527:1" rel="noopener">Huazhu Group (HTHT US)</a> will commence trading in Hong Kong on Tuesday, 22 September. Huazhu priced its Hong Kong secondary listing at HK$297 per share. Huazhu raised net proceeds of HK$5,924.8 million ($0.8 billion).</p></div><div><div class="content-highlight"><p><a href="https://www.smartkarma.com/profiles/rickin-thakrar" target="_blank" data-smartkarma-citation="accounts:1486" rel="noopener">Rickin Thakrar</a> outlined his views on the fundamentals and valuation in <a href="https://www.smartkarma.com/insights/huazhu-secondary-listing-hotel-motel-hanting-hotel" target="_blank" data-smartkarma-citation="insights:43241" rel="noopener">Huazhu Secondary Listing: Hotel, Motel, Hanting Hotel</a>. At the 18 September close price of $42.02 per ADS, the H-share offer price of HK$297 implies a 8.8% discount. We believe that the H-share will likely trade to a slight premium to the ADS on average, broadly similar to the overall median of previous secondary listings.</p></div></div>

Huazhu Group (HTHT US) will commence trading in Hong Kong on Tuesday, 22 September. Huazhu priced its Hong Kong secondary listing at HK$297 per share. Huazhu raised net proceeds of HK$5,924.8 million ($0.8 billion).Rickin Thakrar outlined his views on the fundamentals and valuation in Huazhu Secondary Listing: Hotel, Motel, Hanting Hotel. At the 18 September close price of $42.02 per ADS, the H-share offer price of HK$297 implies a 8.8% discount. We believe that the H-share will likely trade to a slight premium to the ADS on average, broadly similar to the overall median of previous secondary listings.

Huazhu Group Secondary Listing: Trading Debut

China

Yum China Holdings, Inc. operates chain restaurants. The Company offers pizza, entrees, pasta, rice dishes, appetizers, soups, vegetables, beverages, and desserts. Yum China Holding conducts its business worldwide.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Yum China Holdings (9987 HK)

Yum China (YUMC and 9987.HK): Store Units Exceeding 10,000, Looking to Accelerate Expansion in 2021

Yum China maintains its wide moat given attractive China restaurant industry. It consistently demonstrates the leading positions in strong...

Roger Xie

HKEx (388.HK): September Trading Volume Indicated Strong Activities Trend into Q4

We expect Hong Kong Exchange has strong trading activities in Q4, in contrast to usual weak seasonality. Now is a better time to go long on HKEx...

Roger Xie

MINISO Deserves More Than The IPO Valuation

MINISO is the leading variety retailer of lifestyle products globally with an aggregate GMV of RMB 19.0 billion (US$2.7 billion) and revenue of RMB...

Oshadhi Kumarasiri

Yum China (YUMC and 9987.HK) Will Accelerate to Gain Market Shared Post COVID-19

The successful Hong Kong secondary listing could help Yum China Holdings, Inc (YUMC US)

Roger Xie

Huazhu Group Secondary Listing: Trading Debut

Yum China Holdings Inc (9987 HK) will commence trading in Hong Kong on Thursday, 10 September. Yum China Holdings, Inc (YUMC US) priced its Hong...

Arun George

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)