Equity Analyst, Investory

Devi Subhakesan

Equity Analyst

ASIA CONSUMER: INSIGHTS AND INVESTMENT IDEAS

Investory

Investory is a Singapore-based boutique independent equity research firm founded in January 2017 with a primary focus on consumption themes across Asia-Pacific.

We aim to generate investible ideas based on consumption trends and outlook. We screen our ideas on several parameters - product potential, long-term growth and management commitment being the most critical.  We follow a fundamental analysis approach in our stock selection process and are not restricted by market cap.

We aspire to grow into a leading source of unbiased research, free of conflict of interest, for investors yearning for independent and disciplined analysis. 

We also undertake bespoke research mandates to support our Institutional clients’ investment needs.

Our team comprises of professionals with extensive experience in the Asian equity markets, in areas ranging from research, servicing institutional clients and investment management.

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/yum-china-holdings-inc-0533692c-6dae-4014-baa1-ed0b050638f2" target="_blank" data-smartkarma-citation="entities:29259:1" rel="noopener">Yum China Holdings (9987 HK)</a> posted robust year-over-year operating profit growth in 4Q2024 on the back of low single digit sales increase and operating efficiencies.</li>
<li>Despite significant sector headwinds, Yum China has managed to outperform peers and grow ahead of sector in 2024 by swiftly adapting  to shifting consumer preferences.</li>
<li>Yum China's value-for-money QSR model with mid-tier pricing amidst tough sector outlook implies limited margin upside, a likely single-digit sales growth outlook, and a modest dividend yield for 2025.</li>
</ul>



Yum China Holdings (9987 HK) posted robust year-over-year operating profit growth in 4Q2024 on the back of low single digit sales increase and operating efficiencies.
Despite significant sector headwinds, Yum China has managed to outperform peers and grow ahead of sector in 2024 by swiftly adapting  to shifting consumer preferences.
Yum China's value-for-money QSR model with mid-tier pricing amidst tough sector outlook implies limited margin upside, a likely single-digit sales growth outlook, and a modest dividend yield for 2025.


Yum China (9987 HK): 2025 Outlook. Modest Growth and Margin Upside Amid Sector Headwinds

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

<ul><li>We believe Yum China SSSG might still be negative in 4Q24E (despite a positive foot traffic growth), but thanks to its soft raw material inflation and efficiency gains across store and headquarters levels, we do expect net profit growth to be decent in 4Q24E.</li><li>Moreover, supported by the slightly more optimistic FY25E outlook, generous cash return programme and attractive valuation, we maintain BUY.</li><li>Sales trend may still be mildly under pressure in 4Q24E. We expect Yum China’s SSSG in 4Q24E to be at around -3%, similar to that in 3Q24.</li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

We believe Yum China SSSG might still be negative in 4Q24E (despite a positive foot traffic growth), but thanks to its soft raw material inflation and efficiency gains across store and headquarters levels, we do expect net profit growth to be decent in 4Q24E.Moreover, supported by the slightly more optimistic FY25E outlook, generous cash return programme and attractive valuation, we maintain BUY.Sales trend may still be mildly under pressure in 4Q24E. We expect Yum China’s SSSG in 4Q24E to be at around -3%, similar to that in 3Q24.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Yum China (YUMC US) - Improving Outlook and Decent Cash Returns

External reports (aggregated public sources), Value Investors Club

Value Investors Club

External reports (aggregated public sources)

<ul><li>Yum China's stock price has decreased from $34 per share in 2017 to $30 per share currently, with an $8.7 billion enterprise value</li><li>Despite challenges like Covid and macro weaknesses in China, Yum China has shown growth in sales, EPS, and units since 2017</li><li>The stock peaked at $70 in 2021 but has struggled recently due to weak business performance, leading the author to believe the company is undervalued at 10x PE ex-cash with potential for significant returns to shareholders in the next three years</li></ul>This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

Yum China's stock price has decreased from $34 per share in 2017 to $30 per share currently, with an $8.7 billion enterprise valueDespite challenges like Covid and macro weaknesses in China, Yum China has shown growth in sales, EPS, and units since 2017The stock peaked at $70 in 2021 but has struggled recently due to weak business performance, leading the author to believe the company is undervalued at 10x PE ex-cash with potential for significant returns to shareholders in the next three yearsThis content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

Yum China Holdings Inc (YUMC) - Wednesday, Jul 31, 2024

Greater China Equity Long/Short Analyst

Eric Chen

<ul>
<li>We believe Yum China remains the best long-term China catering play. 2Q24 results highlight the resiliency and agility of its business model and management to navigate tough environment.</li>
<li>While cost optimization drove bottom-line beat, we share management’s view that it is not one-off exercise but will strengthen the company’s operation efficiency moat and market leadership.</li>
<li>Macro concerns are well known and fully priced in in our view. Otherwise investors won’t have the opportunity to own the name for low double-digit P/E.</li>
</ul>


We believe Yum China remains the best long-term China catering play. 2Q24 results highlight the resiliency and agility of its business model and management to navigate tough environment.
While cost optimization drove bottom-line beat, we share management’s view that it is not one-off exercise but will strengthen the company’s operation efficiency moat and market leadership.
Macro concerns are well known and fully priced in in our view. Otherwise investors won’t have the opportunity to own the name for low double-digit P/E.


Yum China (9987 HK): The Best Long-Term China Catering Play

<ul><li>Sales growth was indeed a miss in 2Q24, but the net profit was a significant beat.</li><li>For 2H24E, we are still very cautious about the demand and so as the level of competition.</li><li>However, thanks to various efforts like Project Fresh Eye, Project Red Eye, rationalizing number of SKUs, more direct sourcing, and rampup of more profitable store formats (e.g. K-coffee and Pizza Hut’s WOW model) etc., we are confident on a turnaround in 4Q24E. </li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

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 rampup of more profitable store formats (e.g. K-coffee and Pizza Hut’s WOW model) etc., we are confident on a turnaround in 4Q24E. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Yum China (YUMC US) - The Best-In-Class Costs Management in 2Q24

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.

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Yum China Holdings (YUMC US)

Yum China (9987 HK): 2025 Outlook. Modest Growth and Margin Upside Amid Sector Headwinds

Cautious Consumers, Fierce Competition, and the Guochao Trend are Key hurdles on Yum China's path in 2025. Its Value positioning could be a double...

Devi Subhakesan

Yum China (YUMC US) - Improving Outlook and Decent Cash Returns

Sales trend may still be mildly under pressure in 4Q24E. We expect Yum China’s SSSG in 4Q24E to be at around -3%, similar to that in 3Q24.

CMB International

Yum China Holdings Inc (YUMC) - Wednesday, Jul 31, 2024

Yum China's stock price has decreased from $34 per share in 2017 to $30 per share currently, with an $8.7 billion enterprise value

Value Investors Club

Yum China (9987 HK): The Best Long-Term China Catering Play

Cost optimization driving 2Q beat is not one-off actions but long-term strategy with enduring and strategic benefits. Deflationary concerns are...

Eric Chen

Yum China (YUMC US) - 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...

CMB International

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Yum China (9987 HK): 2025 Outlook. Modest Growth and Margin Upside Amid Sector Headwinds

​Cautious Consumers, Fierce Competition, and the Guochao Trend are Key hurdles on Yum China's path in 2025. Its Value positioning could be a double...

Devi Subhakesan

Yum China (YUMC US) - Improving Outlook and Decent Cash Returns

Sales trend may still be mildly under pressure in 4Q24E. We expect Yum China’s SSSG in 4Q24E to be at around -3%, similar to that in 3Q24.

CMB International

Yum China Holdings Inc (YUMC) - Wednesday, Jul 31, 2024

Yum China's stock price has decreased from $34 per share in 2017 to $30 per share currently, with an $8.7 billion enterprise value

Value Investors Club

Yum China (9987 HK): The Best Long-Term China Catering Play

Cost optimization driving 2Q beat is not one-off actions but long-term strategy with enduring and strategic benefits. Deflationary concerns are...

Eric Chen

Yum China (YUMC US) - 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...

CMB International

Cautious Consumers, Fierce Competition, and the Guochao Trend are Key hurdles on Yum China's path in 2025. Its Value positioning could be a double...