20230802-招银国际-Likely_to_be_resilient_and_outperform_in_2H23E_8页_1mb

Yum China (YUMC US) Equity Research

Summary

This report from CMB International Global Markets analyzes Yum China and maintains a BUY rating with an updated target price (TP) of US$74.47 (previously US$73.71), reflecting a 22% upside from the current price of US$61.02.

Key Highlights

1. Recent Performance

• Strong 2023 H1 Results:
  • Net profit surged by 137% YoY to US$197 million, exceeding both CMBI and Bloomberg estimates.
  • Sales growth of 25% YoY (US$2.65 billion), slightly above the CMBI estimate but below Bloomberg's.

2. Key Factors Driving Resilience

• Exceptional SSSG: 15% in 2H23, significantly above the initial estimate of 5%, attributed to:
  • Relentless operations.
  • Strong recovery at transportation hubs and tourist attractions.
  • Faster store expansion (25% YoY vs. 8% in Q1).
• Improving Margins: KFC/Pizza Hut OP margins reached 17.3%/12.4%, the highest since 2019, supported by higher sales volumes, targeted marketing, and innovative product rollouts.

3. Future Outlook for 2H23

• Continued positive momentum in:
  • SSSG (revised forecast to 8%).
  • Store openings (quality of new stores and better economics for stores opened post-2019).
• Margins improvable due to:
  • Higher-margin items (e.g., whole chicken, burgers offsetting food price increases).
  • Staff productivity gains.

4. Valuation

• Target Price: US$74.47 (22% upside), based on 27x FY24E P/E.
• Trading at 22x FY24E P/E, below the 5-year average.

5. Recommendation & Risks

• Maintain BUY due to resilient performance and upside valuations.
• Disclosures include analyst certification, risk factors, and disclaimers.

Contact Info

• Analysts: Walter WOO, Raphael TSE
• Phone: +852 3761 8776 / +852 3900 0856
• Email: walterwoo@cmbi.com.hk, raphaeltse@cmbi.com.hk