Investment Rating - The investment rating for Yum China (09987) is "Buy" [5] Core Views - The company achieved a net profit of $212 million in Q2 2024, exceeding expectations, with total revenue of $2.679 billion, a year-on-year increase of 1% [1] - The growth in revenue is primarily driven by a rapid increase in new store openings, with a total store count growing by 13% year-on-year [1] - Cost reduction and efficiency improvements have significantly contributed to profit growth, with the profit margin for Pizza Hut restaurants increasing by nearly 1 percentage point [2] - The company maintains its commitment to a $1.5 billion shareholder return for the year, having completed nearly $1 billion in the first half of 2024 [1] Summary by Sections Financial Performance - In Q2 2024, the company reported operating income of $266 million, a year-on-year increase of 4%, and a net profit of $212 million, up 8% year-on-year [1] - Revenue growth is attributed to new store openings and effective cost management, with overall management expense ratio improving by approximately 1 percentage point [2] Store Expansion - The company continues its expansion trend, with KFC and Pizza Hut store counts increasing by 14% year-on-year [3] - The company aims to open 1,500 to 1,700 new stores within the year, with a focus on innovative store formats like KFC Coffee and Pizza Hut's "Wow" stores [3] Profit Forecast and Valuation - Yum China is projected to achieve revenues of $11.332 billion, $12.316 billion, and $13.251 billion from 2024 to 2026, with year-on-year growth rates of 3%, 9%, and 8% respectively [4] - The net profit forecast for the same period is $852 million, $940 million, and $1.019 billion, with corresponding year-on-year growth rates of 3%, 10%, and 8% [4] - The company is expected to maintain a price-to-earnings ratio (P/E) of 15x, 14x, and 13x for the years 2024, 2025, and 2026 respectively [4]

Investment Rating - The report maintains a "Buy" rating for Yum China (09987 HK) [1][3] Core Views - Yum China achieved record-high revenue in Q2 2024 with refined cost management driving profit growth [1] - The company's digital transformation continues to progress with digital orders accounting for 90% of restaurant revenue in H1 2024 [1] - Yum China has returned $994 million to shareholders through buybacks and dividends year-to-date exceeding the full-year 2023 amount [1] Financial Performance Revenue and Profit - Q2 2024 revenue reached $2 68 billion up 0 94% YoY (4% excluding currency impact) [1] - Operating profit grew 3 50% YoY to $266 million (7% excluding currency impact) [1] - Net profit increased 7 61% YoY to $212 million (11% excluding currency impact) [1] Segment Performance KFC - Q2 2024 revenue reached $2 014 billion up 1 5% YoY (5% excluding currency impact) [1] - Operating profit declined 3 3% YoY to $264 million while core operating profit grew 3 8% to $273 million [1] - Restaurant margin was 16 2% down 1 1 percentage points YoY [1] Pizza Hut - Q2 2024 revenue was $540 million down 2 5% YoY (1% excluding currency impact) [1] - Operating profit increased 13% YoY to $40 million (18% excluding currency impact) [1] - Restaurant margin improved to 13 2% up 0 8 percentage points YoY [1] Store Expansion - Total store count reached 10 931 for KFC and 3 504 for Pizza Hut as of H1 2024 [1] - Net new store additions were 328 for KFC and 79 for Pizza Hut in Q2 2024 [1] Digital Transformation - Digital order revenue reached $2 2 billion in H1 2024 accounting for 90% of restaurant revenue [1] - Combined membership for KFC and Pizza Hut exceeded 495 million with member sales accounting for 65% of system sales [1] Financial Projections - 2024-2026 revenue is projected to grow at a CAGR of 9% reaching $13 787 billion by 2026 [2] - Net profit is expected to grow at a CAGR of 14% reaching $1 066 billion by 2026 [2] - EPS is forecasted to increase from $2 13 in 2024 to $2 77 in 2026 [2] Valuation - Current P E ratios are 16x for 2024 15x for 2025 and 12x for 2026 [1] - P B ratios are projected to decline from 1 9x in 2024 to 1 6x in 2026 [2]

百胜中国 20240806 1 【Q2 业绩会纪要】 【CEO 】 公司今日发布二季度业绩情况，系统销售额在去年同期增长 32%的基础上增长 4%。核心营业利润增长 12%，达到 2.75 亿 美元。每股收益增长 19%。我要感谢同事们的辛勤工作和创新 精神,在复杂多变的环境中我们凭借行业领先的能力和技能将许 多挑战变为机遇。我们正在将这些情况转化为我们的竞争优势， 并且我们已经采取了积极的措施来增加收入和弹性。 我想强调其中的三个。首先，我们重新审视了我们业务中的每一 个关键流程和成本要素 ，然后进行了商业创新以提高我们的运 营效率，增强盈利能力和弹性。可以看到我们正在实现重大成本 节约并将其再投资于食品和价值。其次，我们扩大了目标市场， 并通过高度重视性价比和创新产品来保持市场份额。第二季度我 们的交易额和外卖销售均实现了两位数的增长。我们将继续创新 产品以满足客户的需求。第三，突破性的商业模式已经在肯悦咖 啡和必胜客 Wow 店取得了优秀的初步成果。这些门店实现了同 店销售额和利润的增长，显示出了巨大的潜力，这证明了这些策 略运作良好。这个第二季度是我们自分拆上市以来以来最赚钱的 第二季度，营业利润率扩 ...

Investment Rating - The report maintains a "Buy" rating for Yum China (9987.HK) [4] Core Insights - The company reported a strong profit performance in Q2 2024, with revenue of $2.679 billion, a year-over-year increase of 1% (4% excluding currency effects) [2] - Operating profit reached $266 million, up 4% year-over-year, with an operating margin of 9.9%, reflecting a 0.2 percentage point increase [2] - The company is focusing on improving operational efficiency and optimizing store formats, which has led to better-than-expected profit performance despite slight revenue pressure [2][3] Summary by Sections Financial Performance - Q2 revenue was $2.679 billion, with a year-over-year growth of 1% (4% excluding currency effects) [2] - Operating profit was $266 million, a 4% increase year-over-year, with an operating margin of 9.9% [2] - Net profit for Q2 was $212 million, an 8% increase year-over-year, with a net margin of 7.9% [2] Operational Efficiency - The company has improved its cost control, with a restaurant operating profit margin of 15.5% in Q2 [2] - KFC's operating profit margin was 16.2%, while Pizza Hut's was 13.2%, showing varied performance across brands [2] - The company is implementing projects like "Fresh Eye" and "Red Eye" to optimize operational processes and reduce labor costs [2] Same-Store Sales and Growth Initiatives - Same-store sales decreased by 4%, with KFC down 3% and Pizza Hut down 8% [3] - The company is launching new store formats like K COFFEE and WOW to drive same-store growth [3] - A total of 401 new restaurants were opened in Q2, with a plan to add 1,500-1,700 new stores throughout the year [3] Shareholder Returns - The company returned $249 million to shareholders in Q2 through buybacks and cash dividends, with a total of $994 million returned year-to-date [3] - The annual shareholder return target is $1.5 billion, with 66% of this target already achieved [3] Future Projections - Projected net profits for 2024-2026 are $878 million, $968 million, and $1.053 billion, respectively [4] - Expected EPS for the same period is $2.28, $2.51, and $2.73, with corresponding P/E ratios of 14, 13, and 12 [4]

Investment Rating - The report maintains a rating of "Buy" for Yum China (9987) [2][3] Core Views - Despite a slight decline in same-store sales, the company's cost control exceeded expectations, indicating strong operational management capabilities. The company is expected to provide high returns to shareholders through dividends and buybacks [3] Summary by Sections Financial Performance - For Q2 2024, total revenue reached $2.68 billion, reflecting a 1% increase (4% excluding currency effects). Operating profit was $266 million, up 4% (7% excluding currency effects), and net profit was $212 million, up 8% (11% excluding currency effects). Adjusted net profit was $266 million, up 3% (6% excluding currency effects) [3] - The company plans to return $3 billion to shareholders through dividends and buybacks from 2024 to 2026. Expected EPS for 2024-2026 are $2.16 (-0.08), $2.45 (-0.04), and $2.71 (-0.01), representing year-on-year growth of 8%, 14%, and 10% respectively [3] Store Expansion and Sales - As of H1 2024, the total number of stores reached 15,423, a 13% year-on-year increase. In Q2 2024, 401 new stores were added, with 99 being franchise stores, accounting for 25% of the new openings. KFC added 328 new stores, totaling 10,931, a 14% year-on-year increase, while Pizza Hut added 79 new stores, totaling 3,504, also a 14% increase [3] - Same-store sales experienced a year-on-year decline of 4% in Q2 2024, with KFC down 3% and Pizza Hut down 8%. This performance is at 86.7% of the same period in 2019 [3] Operational Efficiency - The restaurant profit margin for Q2 2024 was 15.5%, up 0.6 percentage points year-on-year. KFC's profit margin was 16.2%, down 1.1 percentage points, while Pizza Hut's profit margin was 13.2%, up 0.8 percentage points. The improvement in Pizza Hut's margin was primarily due to enhanced operational efficiency [3] - Menu innovations and streamlined processes have contributed to improved operational efficiency, with new products like the Pizza Dough Burger performing well. The company is also piloting new store formats to enhance customer experience [3]

Investment Rating - Buy (Maintained) with a current price of HKD 252.80 [1] Core Views - Yum China (9987 HK) reported H1 2024 revenue of USD 5 637 billion, up 1% YoY (or 5% excluding foreign exchange impact), with net profit attributable to shareholders of USD 499 million, up 3% YoY [4] - Core operating margin for H1 2024 was 11 4%, down 0 1 percentage points YoY [4] - Q2 2024 revenue was USD 2 679 billion, up 1% YoY (or 4% excluding foreign exchange impact), with net profit attributable to shareholders of USD 212 million, up 8% YoY [4] - System sales in Q2 2024 increased by 4% YoY (KFC/Pizza Hut up 5%/1% respectively), while same-store sales declined by 4% (KFC/Pizza Hut down 3%/8% respectively) due to lower average spending per customer [4] - Net addition of 401 stores in Q2 2024 (KFC/Pizza Hut added 328/79 stores respectively), with total store count reaching 15,423 (KFC/Pizza Hut at 10,931/3,504 stores respectively) [4] - Company maintains guidance of 1,500-1,700 net new stores in 2024 and a target of 20,000 total stores by 2026 [4] Financial Performance - H1 2024 restaurant margin was 16 6%, down 1 7 percentage points YoY (KFC/Pizza Hut at 17 8%/12 8%, down 2 1/0 5 percentage points respectively) [4] - Q2 2024 restaurant margin was 15 5%, down 0 6 percentage points YoY (KFC/Pizza Hut at 16 2%/13 2%, down 1 1/up 0 8 percentage points respectively) [5] - Food and packaging costs as a percentage of restaurant revenue increased to 31 8% in H1 2024, up 1 4 percentage points YoY [4] - Salaries and employee benefits as a percentage of restaurant revenue increased to 25 8% in H1 2024, up 0 3 percentage points YoY [4] Strategic Initiatives - Pizza Hut WOW stores, targeting young and price-sensitive consumers, launched in May 2024 with over 200 stores expected by year-end [5] - K Coffee stores expanded rapidly from 100 in March 2024 to nearly 300 in July 2024, with a target of 500-600 stores by year-end [5] - K Coffee sold nearly 100 million cups in H1 2024, showing strong growth potential [5] - Project Fresh Eye and Project Red Eye initiatives implemented to reduce unnecessary items and lower costs, with positive effects seen in Q2 2024 [5] Valuation and Forecast - 2024-2026 net profit attributable to shareholders forecast revised down to USD 862/931/1,031 million (down 3%/6%/7% respectively) [6] - EPS for 2024-2026 estimated at USD 2 24/2 42/2 68 [6] - Current share price implies 2024-2026 P/E multiples of 14x/13x/12x [6] - KFC and Pizza Hut still have room for growth in lower-tier cities, with small-store models aiding expansion [6] - Coffee business is seen as a new growth driver for the company [6] Market Data - Total shares outstanding: 385 million [2] - Market capitalization: HKD 97 428 billion [2] - 1-year low/high: HKD 225 20/454 70 [2] - 3-month turnover rate: 272 41% [2]

2024 年 8 月 7 日 百胜中国（9987.HK/YUMC.US） 坚忍不拔，再创佳绩 百胜中国 2024 年上半年收入 56.3 亿美元/+1.1%，归母净利润为 5.0 亿美元 /+3%，其中二季度收入 26.8 亿美元/+1%，归母净利润 2.1 亿美元/+8%。考虑当 下的消费环境，我们下调 24/25/26 年净利润至 8.6/9.7/10.9 亿美元。对应每 EPS 收益为 16.2/18.2/20.4 港元。维持"买入"评级，下调目标价至 376 港元， 较当前股价有 48%的上涨空间。 报告摘要 坚忍不拔，业绩保持正增长。百胜中国上半年收入 56.3 亿美元/+1.1%，归母净利润为 5.0 亿 美元/+3%，其中二季度收入 26.8 亿美元/+1%，归母净利润 2.1 亿美元/+8%。上半年核心利润 率为 11.4%/-0.1pct。系统销售额+5%，同店销售额-3%。在去年高基数的背景下依旧保持了收 入和净利润的增长。尽管同店销售略有下滑，但公司通过降本增效实现净利润的提升。截止 24 年 6 月门店数量达到 1.54 万家，上半年净新增 779 家门店，较 23 年 6 月增长 1 ...

Investment Rating - The report maintains a "Buy" rating for Yum China, positioning it as a top choice in the restaurant industry with a target price of $38.8, indicating a potential upside of 30.2% from the current price of $29.8 [6][24]. Core Insights - Yum China's strong performance in Q2 2024 exceeded market expectations, demonstrating its robust counter-cyclical capabilities. The company has rapidly adjusted its product structure to meet consumer demand for value, leading to increased customer traffic and order volume [6][19]. - The company has implemented cost-cutting and efficiency measures to offset the negative impact of declining average transaction values on profit margins, resulting in a year-on-year increase in operating profit margin and a 4% growth in operating profit for Q2 2024 [6][19]. - The flexible pricing strategy and innovative store models, such as the Pizza Hut WOW concept, have expanded the customer base and opened up greater opportunities for store expansion in lower-tier markets [6][19]. Financial Performance Summary - For 2024, the company expects a revenue growth of 3% year-on-year, with operating profit margin stabilizing around 10% and net profit increasing in the mid-single digits [6][19]. - The financial projections indicate a revenue of $11,296 million for 2024, with a slight increase in net profit to $867 million, reflecting a 4.8% year-on-year growth [12][21]. - The report highlights a decrease in the proportion of food and packaging costs relative to revenue, which only increased by 0.8 percentage points year-on-year, while employee costs slightly decreased due to efficiency improvements [6][19]. Key Financial Metrics - Revenue for 2022 was $9,569 million, increasing to $10,978 million in 2023, with a projected revenue of $11,296 million for 2024, reflecting a year-on-year growth of 2.9% [12][21]. - The net profit for 2022 was $444 million, with a significant increase to $823 million in 2023, and a projected net profit of $867 million for 2024, indicating a growth of 4.8% [12][21]. - The report provides a forecasted PE ratio for Yum China of 14.9x for 2024, down from 16.9x in 2023, indicating a more attractive valuation [12][21].

Investment Rating - Maintains a **Buy** rating with a target price of **HKD 294.91**, based on a **15x FY25E P/E** [1] - The stock is currently trading at **13x FY25E P/E**, indicating it is not overvalued [1] Core Views - Despite weak sales growth in Q2 2024, net profit saw a significant increase, driven by cost management initiatives [1] - The report remains cautious about revenue growth in 2H24E due to high base effects and a weak macroeconomic environment [1] - Confidence in a turnaround in 4Q24E is supported by initiatives like **Project Fresh Eye**, **Project Red Eye**, and the introduction of more profitable store formats such as **K-Coffee** and **Pizza Hut's WOW model** [1] - The report expects **Q3 and Q4 sales/OP/NP growth** to be around **2%/8%/7%** and **+1%/30%/13%**, respectively [1] Sales and Profitability - Q2 2024 sales grew by **1% YoY** to **USD 2.68 billion**, below expectations, but net profit increased by **8% YoY** to **USD 212 million**, exceeding estimates [5] - **KFC's SSSG** declined by **3%** in Q2 2024, while **Pizza Hut's SSSG** fell by **8%**, though Pizza Hut's profitability outperformed KFC [5] - **Delivery sales** grew by **11%**, while **dine-in sales** declined by **3%** in Q2 2024 [5] - **FY24E net store opening target** remains at **1,500 to 1,700**, with a capital expenditure target of **USD 700-850 million** [5] Cost Management and Efficiency - **Project Red Eye** aims to improve supply chain efficiency by simplifying SKUs and reducing unnecessary items [1] - **Project Fresh Eye** focuses on reducing operational complexity, allowing store managers to focus on other tasks [1] - Increased use of **AI and automation**, with over **80% of Pizza Hut stores** equipped with automated rice cookers and **50% with robotic servers** [1] - **Labor costs** are expected to remain low, around **LSD levels** in FY24E, and **G&A expenses** are targeted at **5% of sales**, down from **5.8% in FY23** [1] Store Expansion and Formats - **K-Coffee** targets **500-600 stores** by FY24E, with **300 stores** already opened by July 2024 [1] - **Pizza Hut's WOW model** aims for **200 stores** by FY24E, with **100+ stores** opened by July 2024 [1][9] - The **WOW model** features simpler operations, targeting solo diners and value-conscious consumers, with promising initial results [10] Financial Performance and Forecasts - **FY24E revenue** is expected to grow by **1.4% YoY** to **USD 11.13 billion**, with **net profit** increasing by **5.1% YoY** to **USD 869 million** [12] - **FY25E revenue** is forecasted to grow by **9.1% YoY** to **USD 12.14 billion**, with **net profit** rising by **8.5% YoY** to **USD 943 million** [12] - **FY26E revenue** is projected to grow by **8.7% YoY** to **USD 13.19 billion**, with **net profit** increasing by **14.4% YoY** to **USD 1.08 billion** [12] Valuation and Peer Comparison - The stock is trading at a **15.4x FY24E P/E**, compared to the industry average of **28.8x** [13] - **ROE** is expected to remain stable at **11.6%** in FY24E and FY25E, increasing slightly to **11.9%** in FY26E [12] - **Dividend yield** is forecasted to increase from **1.8% in FY24E** to **2.8% in FY26E** [12] Key Initiatives and Innovations - **Pizza Hut's entry-level priced pizzas** saw double-digit growth in Q2 2024, driven by expanded price ranges and innovative new products [1] - **Single-person meals** and new store formats like **K-Coffee** and **Pizza Hut's WOW model** are expected to drive incremental sales and profit [1][9]

7 Aug 2024 CMB International Global Markets | Equity Research | Company Update Yum China (9987 HK) The best-in-class costs management in 2Q24 Sales growth was indeed a miss in 2Q24, but the net profit was a significant beat. For 2H24E, we are still very cautious about the demand and so as the level of competition. However, thanks to various efforts like Project Fresh Eye, Project Red Eye, rationalizing number of SKUs, more direct sourcing, and ramp up of more profitable store formats (e.g. K-coffee and Pizz ...