Selected Reads

Smartkarma

Equity Bottom-Up

In this episode, we are joined by Insight Provider Devi Subhakesan to discuss disruption in Asia’s restaurant sector, which is currently struggling to overcome the brutal impact of COVID-19. Devi will present her findings from her Smartkarma Original, Asia Restaurant Sector: Disrupted. Opportunities/Challenges Ahead -Time to Pivot &amp; Persist, which looked at companies from Yum China Holdings, Inc (YUMC US) and Haidilao (6862 HK), to Jollibee Foods (JFC PM) and Starbucks Corp (SBUX US) China. Devi…

Morningstar

Morningstar, Inc.

Yum China was spun off into an independent, publicly traded company in October 2016, but remains a trademark licensee of Yum Brands. Although sales trends have been uneven at times amid macroeconomic uncertainty, a changing competitive set and increased promotional activity from rivals, evolving consumer views regarding health and wellness, and executional missteps, we still view Yum China as a wide-moat business thanks to a powerful brand intangible asset, advanced distribution infrastructure…

In our view, wide-moat Yum China's first quarter was highlighted by KFC's successful Chinese New Year product innovation, regionalized product strategies, and focus on value (driving strong comps of 5%, on top of 5% a year ago), Pizza Hut showing further signs of its turnaround (with 1% comps largely driven by 8% increase in transactions and restaurant margins improving 380 basis points to 14.3%), and plans to accelerate its 2019 unit growth plans above its previous target of 600-650 locations…

While Yum China's 2019 investor day offered few incremental long-term financial targets, it did reinforce our wide moat rating and positive long-term bias. We continue to view Yum China as the cleanest way to gain exposure to the growth of the Chinese middle class the next decade, presenting a compelling combination of free cash growth and capital allocation while avoiding certain risks tied to Chinese e-commerce and retail names. We're planning to raise our $48 fair value estimate by a few…

China

Yum China Holdings, Inc. operates chain restaurants. The Company offers pizza, entrees, pasta, rice dishes, appetizers, soups, vegetables, beverages, and desserts. Yum China Holding conducts its business worldwide.