20210924-招银国际-百胜中国-S-09987.HK-Guidance_was_in-line_but_coffee_will_accelerate_9页_2mb

Yum China (9987 HK) Company Update Summary

Core Content

Yum China (9987 HK) continues to demonstrate resilience and growth potential, with the company maintaining a BUY rating and a target price of HK$532.66. The report highlights the company's strong performance in digitalization, successful reform of Pizza Hut, and expansion plans, particularly in the coffee segment through its partnership with Lavazza.

Main Points

• Guidance and Growth Expectations:

  • Yum China updated its long-term guidance, aiming for HSD to Double Digit system sales and operating profit growth.
  • The company's guidance aligns with the research forecast of a 12% sales CAGR and 15% operating profit CAGR for FY20-25E.
  • The long-term store opening target remains at 20,000 stores, with a capex plan of RMB 5-6.5bn for FY20-25E.

• KFC Performance:

  • KFC is expected to maintain a strong sales CAGR of ~13% during FY20-25E.
  • Growth drivers include:
    • Expansion of product offerings (beef burgers, coffee & tea, regional items)
    • Leading digital and delivery experience
    • Faster store expansion
    • Improved store and supply chain efficiency

• Pizza Hut Reform:

  • Pizza Hut has seen significant improvement in fundamentals and is expected to grow at ~12% CAGR during FY20-25E.
  • Key factors contributing to growth:
    • Product upgrades (variety and quality)
    • Better price-to-quality ratio (after ASP cuts)
    • Store revamps (50% of stores were new or refurbished in the past 3 years)
    • Accelerated expansion through satellite stores (lower capex, better margins)

• Coffee Segment Expansion:

  • Lavazza is set to open 1,000 stores by FY25E.
  • Coffi & JOY will resume expansion in FY21E.
  • Lavazza's sales per store are estimated at RMB 4-5mn, with an OP margin of 15-20%, contributing 3-5% to the group's operating profit.

• Valuation and Market Position:

  • Yum China is currently trading at 24x FY22E P/E, which is less demanding than peers like HDL (38x) and JMJ (37x).
  • The company is valued at 30x FY22E P/E, with a target price based on this multiple.
  • Yum China's P/B ratio is 3.1x for FY22E, and its ROE is 13.5%.

Key Financial Highlights

Key Ratios

• Gross Margin: 71.8% (FY19A), 71.7% (FY20A), 71.8% (FY21E), 71.7% (FY22E), 71.5% (FY23E)
• Operating Margin: 10.3% (FY19A), 11.6% (FY20A), 9.8% (FY21E), 11.6% (FY22E), 11.9% (FY23E)
• Pre-tax Margin: 11.4% (FY19A), 13.4% (FY20A), 10.8% (FY21E), 12.6% (FY22E), 12.9% (FY23E)
• Net Margin: 8.1% (FY19A), 9.5% (FY20A), 7.7% (FY21E), 9.0% (FY22E), 9.3% (FY23E)
• Current Ratio: 1.3 (FY19A), 3.0 (FY20A), 3.0 (FY21E), 3.2 (FY22E), 3.4 (FY23E)
• Quick Ratio: 1.1 (FY19A), 2.8 (FY20A), 2.8 (FY21E), 3.0 (FY22E), 3.2 (FY23E)
• Cash Ratio: 0.6 (FY19A), 2.3 (FY20A), 2.3 (FY21E), 2.5 (FY22E), 2.7 (FY23E)
• Inventory Turnover Days: 51 (FY19A), 50 (FY20A), 50 (FY21E), 50 (FY22E), 50 (FY23E)
• Trade Receivables Days: 3 (FY19A), 4 (FY20A), 4 (FY21E), 4 (FY22E), 4 (FY23E)
• Trade Payables Days: 91 (FY19A), 90 (FY20A), 90 (FY21E), 90 (FY22E), 90 (FY23E)

Key Insights

• Digitalization: Yum China has made significant strides in digitalization, with a focus on store operations, supply chain management, and automation, enhancing quality control and risk management.
• Market Position: The company is well-positioned to benefit from the growing demand for coffee in China, leveraging its partnership with Lavazza.
• Investor Sentiment: Despite the long-term guidance being in-line with expectations, the company remains a BUY due to its strong fundamentals and growth drivers.

Shareholding and Performance

• Shareholding Structure:

  • Primavera Capital: 5.7%
  • BlackRock: 7.1%
  • Invesco: 9.0%
  • Management: 0.2%
  • Free Float: 78.0%

• Share Performance:

  • 1-month: -6.5%
  • 3-months: -18.5%
  • 6-months: -9.8%
  • 12-months: 9.2%

Conclusion

Yum China continues to show strong growth potential, particularly in the coffee segment, with a solid digital transformation strategy and effective store expansion plans. The company is trading at a reasonable valuation compared to its peers and is expected to maintain its growth trajectory, supported by its resilient performance and strategic initiatives.