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): Accelerating New Store Openings to Improve Long-Term Profitability

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

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

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<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 (<em>Same Store Sale</em>) 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>
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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