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): Strategic Investment in Sunner to Strengthen Supply Chain Management

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

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

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

Yum China: Reported HK Offer Price at 5% Discount to NY Closing. Room for Upside.

Yum China: HK Listing - Hit Two Birds with One Stone; Bon Appetit

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