Investment Rating - The report maintains a "Buy" rating for Yum China (YUMC.US/9987.HK) with a target price of HKD 479.7 for the Hong Kong-listed shares and USD 61.5 for the US-listed shares [2][3] Core Views - Yum China's 3Q24 operating profit growth exceeded expectations due to cost reduction and efficiency improvements [2] - The company's flexible operational strategies and strong management capabilities are driving improved same-store sales and continued cost optimization [2] - Yum China plans to increase shareholder returns from USD 3 billion to USD 4.5 billion for 2024-2026, which is expected to boost market sentiment [2] Same-Store Sales Outlook - Same-store sales are expected to trend positively in 2025, with KFC likely to return to positive same-store sales growth and Pizza Hut narrowing its decline [2] - KFC's average check is expected to remain stable, while Pizza Hut's average check may face downward pressure due to the increasing proportion of WOW stores [2] Cost Optimization and Efficiency - Despite declining average checks, restaurant-level margins remained flat YoY in 3Q24, and operating margins expanded by 1.0ppt [2] - The company expects cost optimization efforts to continue, though the marginal benefits may weaken in 2025 [2] - Management aims to maintain the administrative expense ratio below 5% in the medium to long term [2] Franchise Expansion - Yum China plans to accelerate franchise development, with franchise stores expected to account for 40%-50% of KFC's net new openings and 20%-30% of Pizza Hut's net new openings [2] - The franchise model is seen as complementary to company-owned stores, helping to expand into new markets and regions [2] - Franchise stores are expected to achieve operating margins comparable to company-owned stores, with strict controls in place to ensure operational quality and food safety [2] Financial Performance and Forecasts - Revenue is projected to grow from USD 11,352 million in 2024E to USD 13,041 million in 2026E, with net income attributable to shareholders increasing from USD 919 million to USD 1,059 million over the same period [6] - The company's EV/EBITDA multiple is expected to decline from 9.9x in 2024E to 8.4x in 2026E, reflecting improved profitability and efficiency [6] Market Sentiment and Valuation - The report highlights a potential upside of 27.3% for Yum China's US-listed shares and 24.3% for its Hong Kong-listed shares based on the target prices [3][4] - The company's market capitalization stands at USD 8,386 million, with a 3-month average daily trading volume of USD 144.9 million [3]
百胜中国：有望趋势性改善，降本增效有望持续推进