Adjusted net profit in 2023 was US$842 million, and margins of profitability continued to improve. In 2023, the company achieved revenue of US$10.978 billion/+14.7%; adjusted operating profit of US$1,121 million/ +77.1%; adjusted net profit of US$842 million/ +88.7%, adjusted net interest rate of 7.7%. The profit margin performance was only lower than the 2019 level (8.3%), and the margin of profitability continued to improve. 2023Q4, the company achieved revenue of US$2,493 million/ +19.4%; adjusted operating profit of US$116 million/ +190.0%; adjusted net profit of US$103 million/ +98.1%.
At the operating level, in 2023, the company's system sales increased by 21%, of which KFC/PZH increased 20%/24% respectively; same-store sales increased 7%, including KFC/PZH +7%/+6% respectively; restaurant profit margin was 16.3% /+2.2pct, which exceeded the same period in 2019 (16.0%). In terms of store expansion, a net increase of 542 stores (379/110 KFC/PZH respectively) was added in 2023Q4, with a cumulative net increase of 1,677 (1202/409 KFC/PZH, respectively), exceeding the target forecast for the third quarter (net increase of 1400-1600), and the total number of restaurants reached 14,644 (10296/3312 KFC/PZH respectively).
The overall cost control effect is good, and the rent level is remarkable. In 2023, the company's food and packaging accounted for 31.0% /-0.1pct; salary and employee benefits accounted for 26.2%, the same as the previous year; property rent and other operating expenses accounted for 26.5% /-2.1pct, and the rent level was clearly optimized.
2023Q4, the company's overall food and packaging accounted for 32.4% /+0.5pct; salary and employee benefits accounted for 28.9% /+0.1pct; rent and other costs accounted for 27.9% /-0.9pct.
In 2024, it is planned to increase the net number of stores by 1500-1700, reaffirming the business target for the next 3 years. A total of approximately $833 million was returned to shareholders in fiscal year 2023 ($613 million in repurchases), an increase of 25% year over year, while the plan is to return at least $3 billion to shareholders in the form of quarterly cash dividends and share repurchases in 2024-2026. In 2024, the company expects a net increase of 1500-1,700 stores, and the capital expenditure is expected to be US$7-850 million. In the 2024-2026 period, system sales and operating profit achieved compound annual growth from high units to double digits, and the total number of stores reached 20,000 in 2026.
Risk warning: declining consumption power, poor sinking effect, slower brand incubation than expected, industry competition intensifying investment suggestions: The company expects revenue of US$120.59/131.25/US$14.248 billion in 2024-2026 (the original forecast was US$128.7/14.19 billion in 24-25), and the net profit due to mother in 2024-2026 to US$9.14/9.95/1.081 billion (the original forecast for 24-25 was US$1,12/1.29 billion), +10.5%/8.6% YoY , compatible with PE 18.9/17.4/16.0x. Looking at the whole of 2023, the company's store expansion showed great resilience in a weak business environment. The core brand potential is still there, and with active cost control, profit growth is steady. Considering that the company's operating goals for the next 3 years are clear and relatively stable (during the 2024-2026 period, system sales and operating profit achieved high unit numbers to double digit compound annual growth), our analysis has a high probability of achieving the target and maintaining the company's “gain” rating.