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> delivered 21Q1 result better than market expectation. Helped by a low base for comparison (Pandemic peak in China in 20Q1), Yum China revenue is up 46% year-over-year or 11% vs 19Q1, operating profit is up 250% year-over-year or 13% vs 19Q1. The positive surprise is that Pizza Hut is starting to fully reap the benefits of multiple years of revitalization efforts. Pizza Hut's restaurant delivered margin of 15.3% in 21Q1 (the highest level since 2017), which drives operating profit up 20% vs 19Q1. </li>
<li>Yum China management expects non-linear recovery of SSS (Same Store Sale) as dine-in traffic still well below 2019 level. The resurgence of COVID-19 cases early this year has put Chinese restaurant sector under pressure. Several cities have returning to citywide quarantines, and travel volume during the early period of Chinese New Year is down 70%. Given Yum China's resilience in its KFC brand and the faster recovery in Pizza Hut, we feel more confident that the company can sustain a midteens restaurant margin over the next few years and even achieve high teens over the longer period. </li>
<li>Management's guidance on growth strategy also shows Yum China's agility to navigate through the uncertainty. 1) Yum China is dedicated to opening another 1,000 stores in 2021, and reach around more than 11,000 stores in China by year end; 2) Growing its portfolio to include diversified restaurant offerings; 3) Digital strategy: Delivery and takeaway now account for 55%/40% of KFC/PH revenue. We continue to believe <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> offers investors better reward/risk potential in China restaurant sector. Our raised TP for Yum Chin is US$72, which is based on 30x 2021e P/E. </li>
</ul>



Yum China Holdings, Inc (YUMC US) delivered 21Q1 result better than market expectation. Helped by a low base for comparison (Pandemic peak in China in 20Q1), Yum China revenue is up 46% year-over-year or 11% vs 19Q1, operating profit is up 250% year-over-year or 13% vs 19Q1. The positive surprise is that Pizza Hut is starting to fully reap the benefits of multiple years of revitalization efforts. Pizza Hut's restaurant delivered margin of 15.3% in 21Q1 (the highest level since 2017), which drives operating profit up 20% vs 19Q1. 
Yum China management expects non-linear recovery of SSS (Same Store Sale) as dine-in traffic still well below 2019 level. The resurgence of COVID-19 cases early this year has put Chinese restaurant sector under pressure. Several cities have returning to citywide quarantines, and travel volume during the early period of Chinese New Year is down 70%. Given Yum China's resilience in its KFC brand and the faster recovery in Pizza Hut, we feel more confident that the company can sustain a midteens restaurant margin over the next few years and even achieve high teens over the longer period. 
Management's guidance on growth strategy also shows Yum China's agility to navigate through the uncertainty. 1) Yum China is dedicated to opening another 1,000 stores in 2021, and reach around more than 11,000 stores in China by year end; 2) Growing its portfolio to include diversified restaurant offerings; 3) Digital strategy: Delivery and takeaway now account for 55%/40% of KFC/PH revenue. We continue to believe Yum China Holdings, Inc (YUMC US) offers investors better reward/risk potential in China restaurant sector. Our raised TP for Yum Chin is US$72, which is based on 30x 2021e P/E. 


Yum China (YUMC and 9987.HK): Pizza Hut Recovered Faster than Market Expectation

Research on Tech Companies

Evelyn Zhang

Thematic (Sector/Industry)

The recent fall in price of many so called “China concept shares” of US listed Chinese companies, has largely been triggered by the passing of the "Holding Foreign Company Accountability Act" (HFCAA).A flock of US listed Chinese companies have since decided to relist in HKSE due to a few reasons:<ol>
<li>The HFCAA causing conflicting compliance requirements with Chinese regulations.</li>
<li>Fear among investors of forced delisting in the US.</li>
<li>HKEX deregulation allowing more Chinese companies to be listed.</li>
<li>The valuation in HK is in sync with the U.S. stock market.</li>
<li>HK attracting more Chinese funds to operate in HKEX.</li>
</ol>

The recent fall in price of many so called “China concept shares” of US listed Chinese companies, has largely been triggered by the passing of the "Holding Foreign Company Accountability Act" (HFCAA).A flock of US listed Chinese companies have since decided to relist in HKSE due to a few reasons:
The HFCAA causing conflicting compliance requirements with Chinese regulations.
Fear among investors of forced delisting in the US.
HKEX deregulation allowing more Chinese companies to be listed.
The valuation in HK is in sync with the U.S. stock market.
HK attracting more Chinese funds to operate in HKEX.


Exit the Dragon – the Mass Exodus of US Listed Chinese Companies

<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> announced its strategic investment on <a href="https://www.smartkarma.com/entities/fujian-sunner-development-a" target="_blank" data-smartkarma-citation="entities:9168:1" rel="noopener">Fujian Sunner Development A (002299 CH)</a> and increase the equity interest to 5%. We estimate transaction price is about RMB 26.51/share for <a href="https://www.smartkarma.com/entities/fujian-sunner-development-a" target="_blank" data-smartkarma-citation="entities:9168:1" rel="noopener">Fujian Sunner Development A (002299 CH)</a> or 17x forward P/E. We believe the transaction valuation is favorable as poultry industry is facing downward pricing pressure due to the prolonged pandemic impact. </li>
<li>Founded in 1983 and headquartered in the Fujian Province, Sunner is China's largest white- feathered chicken producer. We estimate that Sunner is one of Yum China's largest poultry supplier and accounts more than half of its chicken supply. This strategic investment will enhance Yum China's supply chain security and strengthen the collaborations. We have highlighted in the investment theme: Yum China's capability to secure supply chain and distribution system make its wide moat in China restaurant industry.</li>
<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> finished 2020 on a high note given its resilient business model. The system sale grew 5% in Q4 2020, and it operating profit grew 78% year-over-year given its consolidation of Huang Ji Huang. We believe Yum China is well positioned to weather the uncertainty post COVID. On the M&amp;A front, Yum China is committed to open 1000 new stores in 2021 and will seek for strategic opportunities to manage cost and drive efficiency improvement. The Fujian Sunner strategic investment bodes well for this principle. We continue to believe <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>  offers investor better reward/risk potential. </li>
</ul>



Yum China Holdings, Inc (YUMC US) announced its strategic investment on Fujian Sunner Development A (002299 CH) and increase the equity interest to 5%. We estimate transaction price is about RMB 26.51/share for Fujian Sunner Development A (002299 CH) or 17x forward P/E. We believe the transaction valuation is favorable as poultry industry is facing downward pricing pressure due to the prolonged pandemic impact. 
Founded in 1983 and headquartered in the Fujian Province, Sunner is China's largest white- feathered chicken producer. We estimate that Sunner is one of Yum China's largest poultry supplier and accounts more than half of its chicken supply. This strategic investment will enhance Yum China's supply chain security and strengthen the collaborations. We have highlighted in the investment theme: Yum China's capability to secure supply chain and distribution system make its wide moat in China restaurant industry.

Yum China Holdings, Inc (YUMC US) finished 2020 on a high note given its resilient business model. The system sale grew 5% in Q4 2020, and it operating profit grew 78% year-over-year given its consolidation of Huang Ji Huang. We believe Yum China is well positioned to weather the uncertainty post COVID. On the M&amp;A front, Yum China is committed to open 1000 new stores in 2021 and will seek for strategic opportunities to manage cost and drive efficiency improvement. The Fujian Sunner strategic investment bodes well for this principle. We continue to believe Yum China Holdings, Inc (YUMC US)  offers investor better reward/risk potential. 


Yum China (YUMC and 9987.HK): Strategic Investment in Sunner to Strengthen Supply Chain Management

Asia Consumer Research, Investory

Devi Subhakesan

Asia Consumer Research

ASIA CONSUMER: INSIGHTS AND INVESTMENT IDEAS

Investory

Investory is a Singapore-based boutique independent equity research firm founded in January 2017 with a primary focus on consumption themes across Asia-Pacific.

We aim to generate investible ideas based on consumption trends and outlook. We screen our ideas on several parameters - product potential, long-term growth and management commitment being the most critical.  We follow a fundamental analysis approach in our stock selection process and are not restricted by market cap.

We aspire to grow into a leading source of unbiased research, free of conflict of interest, for investors yearning for independent and disciplined analysis. 

We also undertake bespoke research mandates to support our Institutional clients’ investment needs.

Our team comprises of professionals with extensive experience in the Asian equity markets, in areas ranging from research, servicing institutional clients and investment management.

In this insight, we discuss the investment view on <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> for the long and short term, based on analysis of its valuations, operational and financial outlook and Management commentary following the Q42020 results.<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> has rewarded investors with an 18% return in the past 6 months, almost in line with the index, and a 16% return from its HK secondary (Sep. 2020) listing price. The steady stock performance was backed by a stable recovery in operations and financials; it reported an 11 % growth in Q4 revenues and robust growth in operating and net income compared to 2019. The contrast with market-favourite in the segment, <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao (6862 HK)</a> is notably stark. In the same time period (past 6 months), Haidilao stock price had a rollercoaster ride - buoyed up by index inclusion; and now back to Sep 2020 levels, underperforming the index by a wide margin.

In this insight, we discuss the investment view on Yum China Holdings Inc (9987 HK) for the long and short term, based on analysis of its valuations, operational and financial outlook and Management commentary following the Q42020 results.Yum China Holdings Inc (9987 HK) has rewarded investors with an 18% return in the past 6 months, almost in line with the index, and a 16% return from its HK secondary (Sep. 2020) listing price. The steady stock performance was backed by a stable recovery in operations and financials; it reported an 11 % growth in Q4 revenues and robust growth in operating and net income compared to 2019. The contrast with market-favourite in the segment, Haidilao (6862 HK) is notably stark. In the same time period (past 6 months), Haidilao stock price had a rollercoaster ride - buoyed up by index inclusion; and now back to Sep 2020 levels, underperforming the index by a wide margin. 

Yum China (9987 HK): Simple Fare Trumps the Special Treat (6862 HK). What Now?

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Autohome Inc (Adr) / Equity Capital Markets

Autohome plans to raise around US$864m in its secondary listing in Hong Kong. Unlike the prior secondary listing, this one contains a sell down as well
I have covered most aspects of the deal in my earlier note, <a href="https://www.smartkarma.com/insights/autohome-secondary-listing-doesn-t-need-the-cash-at-all" target="_blank" rel="noopener">Autohome Secondary Listing - Doesn’t Need the Cash at All. </a>In this note, I'll only touch upon the updates since my last note.

Autohome plans to raise around US$864m in its secondary listing in Hong Kong. Unlike the prior secondary listing, this one contains a sell down as well
I have covered most aspects of the deal in my earlier note, Autohome Secondary Listing - Doesn’t Need the Cash at All. In this note, I'll only touch upon the updates since my last note.

Autohome Secondary Listing - Going Down a Different Route

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.

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Yum China Holdings (YUMC US)

Yum China (YUMC and 9987.HK): Pizza Hut Recovered Faster than Market Expectation

The biggest earning surprise is that Pizza Hut is starting to fully reap the benefits of multiple years of revitalization efforts. We raise TP for...

Roger Xie

Exit the Dragon – the Mass Exodus of US Listed Chinese Companies

Is US-China financial decoupling affecting the US stock market? What's the future of US listed Chinese companies l? How can investors in China...

Evelyn Zhang

Yum China (YUMC and 9987.HK): Strategic Investment in Sunner to Strengthen Supply Chain Management

Yum China announced its strategic investment on Fujian Sunner. This transaction will enhance Yum China's supply chain security and strengthen the...

Roger Xie

Yum China (9987 HK): Simple Fare Trumps the Special Treat (6862 HK). What Now?

Discuss Investment view on the stock - both long and short term - backed by analysis of valuations, operational/financial outlook and Management...

Devi Subhakesan

Autohome Secondary Listing - Going Down a Different Route

Autohome plans to raise around US$864m in its secondary listing in Hong Kong. Unlike the prior secondary listing, this one contains a sell down as...

Sumeet Singh

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