China and US Equity Analyst

Roger Xie

10 year investment experience on public and private equity. Deep-dive fundamental research. Specialize in China and US market.

Yum China (YUMC and 9987.HK): Short-Term Pressure Due to Resurge of COVID Cases in China

Yum China (YUMC.US/9987.HK): Resilient Business Model in the Face of Rising COVID Cases

Yum China (YUMC.US/​9987.HK): Zero-COVID Policy Weighted on Earnings

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

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

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

Equity Bottom-Up

<ul>
<li>The most positive surprise from <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> 2021Q2 earning call is its step-up of new store openings in the quarter and management's projection. The company added 404 new stores and total store counts is up 11% year-over-year. More impressively, management targeted to open 1300 stores (up from prior 1000 stores) this year. If this new store openings trajectory will stay, <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> store counts will delivery 10% annual growth rate, which could be the big positive for Yum China long-term profitability. </li>
<li>2021 Q2 system sales are up 14% year-over-year (or 9% above 2019 Q2), and adjusted operating profits (ex-FX) are up 63% year-over-year. Even though KFC's same-store sales were still 7% behind pre-COVID-19 levels, the company was able to offset weaker unit economics with accelerated store openings. Pizza Hut’s accelerating recovery is also a positive surprise. During the same period, commodity costs declining 7% year-over-year. </li>
<li>As China steps up its effort to curb tech giants (such as <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global (DIDI US)</a> , <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> ), the delivery riders' benefits have come to the spotlight. <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> owns its delivery fleet and it confirmed to be compliant with applicable laws and regulations. YUMC believes they pay competitive rates to their riders and raised staff wages by 2-3% year-over-year in 1H21. We believe the policy impact on rider benefits is limited.  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. We reiterate TP US$72 for Yum China, which is based on 30x 2021e P/E. </li>
</ul>


The most positive surprise from Yum China Holdings, Inc (YUMC US) 2021Q2 earning call is its step-up of new store openings in the quarter and management's projection. The company added 404 new stores and total store counts is up 11% year-over-year. More impressively, management targeted to open 1300 stores (up from prior 1000 stores) this year. If this new store openings trajectory will stay, Yum China Holdings, Inc (YUMC US) store counts will delivery 10% annual growth rate, which could be the big positive for Yum China long-term profitability. 
2021 Q2 system sales are up 14% year-over-year (or 9% above 2019 Q2), and adjusted operating profits (ex-FX) are up 63% year-over-year. Even though KFC's same-store sales were still 7% behind pre-COVID-19 levels, the company was able to offset weaker unit economics with accelerated store openings. Pizza Hut’s accelerating recovery is also a positive surprise. During the same period, commodity costs declining 7% year-over-year. 
As China steps up its effort to curb tech giants (such as DiDi Global (DIDI US) , Alibaba Group (BABA US) ), the delivery riders' benefits have come to the spotlight. Yum China Holdings, Inc (YUMC US) owns its delivery fleet and it confirmed to be compliant with applicable laws and regulations. YUMC believes they pay competitive rates to their riders and raised staff wages by 2-3% year-over-year in 1H21. We believe the policy impact on rider benefits is limited.  We continue to believe Yum China Holdings, Inc (YUMC US) offers investors better reward/risk potential in China restaurant sector. We reiterate TP US$72 for Yum China, which is based on 30x 2021e P/E. 


Yum China (YUMC and 9987.HK): Accelerating New Store Openings to Improve Long-Term Profitability