The Zhitong Finance App learned that Anxin International released a research report stating that it maintained Yum China's (09987) “buy” rating and increased net profit to mother for 24/25/26 to US$9.2/10.3/1.13 billion, respectively. The corresponding EPS was HK$17.7/19.8/21.8, and the target price was raised to HK$421. The bank believes that Yum China has considerable competitive advantage and brand influence on the fast food circuit, excellent management ability, great potential for future growth, and high certainty.

Anxin International's main views are as follows:

Revenue reached a record high, and the growth rate resumed.

Yum China's revenue for the full year of 2023 was US$10.9 billion/+14% (+21% at the fixed exchange rate), and net profit to mother was US$827 million/+88% (+99% at the fixed exchange rate). The restaurant's profit margin was 16.3% /+2.1pct. System sales +21%, same-store sales +7%. By the end of '23, the number of stores was 14,600, and 1,697 new stores were added in '23. Compared with '21, the annualized growth rate of revenue was 5.6%, and the annualized growth rate of adjusted operating profit was 20.9%. The growth rate has recovered.

KFC hit a record high and Q4 began improving month by month.

In '23, KFC had revenue of US$8.24 billion/+14%, operating profit of US$1.02 billion/+52%, and operating profit margin of 14.6% /+3.7pct. KFC's system sales increased 20% year over year, and same-store sales increased 7%. The customer unit price fell 11% year over year, mainly because the company added low-cost entry-level products. Fourth quarter revenue of US$1.87 billion/+17%, operating profit of US$250 million/ +42%.

Both quarterly and yearly, KFC's revenue and operating profit reached record highs. Although Q3 of '23 faced some pressure due to the weak consumer environment, the business situation improved slightly in Q4, and there was a trend of improving month by month. The consumption environment eased, and the company actively launched drainage activities to accelerate the growth of passenger traffic. By the end of the year, the number of stores reached 10,296, an increase of 13% over the same period last year. The growth rate of franchise stores is higher than that of direct-run stores, and has maintained a growth rate of around 20% for the past two years. The company is actively increasing the number of small stores and expanding into a declining market.

Pizza Hut turned a profit in the fourth quarter, and the speed of opening stores accelerated.

Pizza Hut's revenue in '23 was $2.25 billion/+14.6%, operating profit was $142 million/103%, and operating margin was 6.3% /+2.7pct. Fourth-quarter revenue of $496 million/ +22.8%, and operating profit of $5 million. Pizza Hut's system sales increased 20% year over year, and same-store sales increased 6%. By the end of the year, the number of stores reached 3,312, an increase of 14% over the same period last year, with a net opening of 409 stores throughout the year, continuing to accelerate from previous years. The company continues to expand into a downward market, and the share of small stores continues to rise.

The decline in the share of rent led to an increase in profit margins.

The restaurant's profit margin in '23 was 15.4%, an increase of 2 pct over the same period last year. The share of raw material costs and labor costs was basically the same as in '22, and the share of rent and other costs decreased by 2.1 pct compared to '22. On the one hand, it benefits from lower rents and depreciation amortization, and on the other hand, from savings in management costs brought about by more efficient management.

It reached 20,000 companies 26 years ago, and will give back 3 billion US dollars to shareholders in the future.

The company expects to open 1,500-1,700 new stores in 24, and the number of stores will reach 20,000 by 2026, with a compound annualized growth rate of 11%. Currently, six of the company's newly opened stores have become third- and fourth-tier cities. The company also said it will give back about 3 billion US dollars to shareholders in the form of dividends and repurchases over the next three years. The 24-year repurchase plan, totaling US$1.25 billion, will bring 7.6% of revenue based on the current market value, and the return is quite impressive. Additionally, the company raised its quarterly cash dividend to $0.16 per share, up 23% from the previous period.