The Zhitong Finance App learned that Everbright Securities released a research report stating that it maintained the Yum China (09987) “buy” rating, adjusted the 2024-2025 net profit forecast to be US$9.15/1,020 million, respectively, and introduced the 2026 net profit forecast of US$1,135 million, equivalent to EPS of US$2.25/2.51/2.79, respectively. KFC and Pizza Hut still have some room for growth in terms of channel decline. The small store model helps to sink better; the coffee business is booming, which is expected to bring new growth impetus to the company.

Event: The company released its 2023 annual report. In 23, the company achieved revenue of 10.98 billion US dollars, a year-on-year increase of 15% (or 21% increase, based on a fixed exchange rate); achieved operating profit of 1.1 billion US dollars, an increase of 76% year-on-year, and a year-on-year increase of 79% in core operating profit. Among them, 23Q4 achieved revenue of US$2.49 billion, a year-on-year increase of 19% (or 21% increase, based on a fixed exchange rate); achieved operating profit of US$110 million, an increase of 170% year-on-year, and a year-on-year increase of 324% in core operating profit.

The report's main points are as follows:

Q4 customer traffic grew rapidly, driving the same store to achieve better growth.

In terms of store operations, 23Q4 system sales were +21% (KFC/Pizza Hut +24%, respectively); same-store sales were +4% (KFC/Pizza Hut +3%/+6%, respectively). Although customer unit prices declined more year over year (KFC/Pizza Hut unit price was -11%/-8%, respectively), customer traffic grew rapidly (KFC/Pizza Hut passenger flow was +16%/+15%, respectively).

In terms of store openings, there was a net increase of 1,697 stores in 2023, and a net increase of 542 stores in 2304 (379/110 for KFC/Pizza Hut respectively). KFC opened faster than 23Q3; the total number of restaurants at the end of the period was 14,644 (10296/3312 for KFC/Pizza Hut respectively), and the number of new net stores in 2023 exceeded the target of 1,400-1600. In terms of company guidelines, the target for net new stores in 2024 was raised to 1,500-1,700, and the target of reaching 20,000 total stores in 2026 is still being maintained.

Shareholder feedback increased further in '24, and performance is still growing.

In '23, the company gave back a total of US$833 million to shareholders through repurchases and dividends, an increase of 25% over the previous year; of these, 23Q4 gave back about US$390 million to shareholders, a record high. By the end of '23, the company still had approximately $1.5 billion in repurchase authorizations for future share repurchases. In '24, the company plans to further increase shareholder feedback. In '24, it will repurchase $1.25 billion of common shares and pay a cash dividend of $0.16 per share in March.

In 23Q4, same-store revenue recovered to around 85% of the same period in '19. On a monthly basis, benefiting from a recovery in demand and the company's new products and events (KFC 10,000 store celebration), there was an improvement from November-December '23 compared to October, and there was a marked recovery in customer flow. The Lunar New Year period is the peak sales season for Yum Sheng China, and both KFC and Pizza Hut will continue to drive traffic through new products and activities (cash barrels). Although 24Q1 profit faces a high base, the company is still expected to achieve the same profit margin from core operations compared to the same period last year. In the context of the current external environment facing pressure, we believe that the company, as a leader, has strong resilience to risks and has an outstanding intention to dividend/repurchase (it is expected to complete half of the previously proposed US$3 billion shareholder return target in 24 years), so it is recommended to focus on it.

Risk warning: risk of repeated epidemics, risk of food safety, risk of exchange rate fluctuations. Official account: eBoVersea