Yum China: The largest domestic restaurant chain, based on the diversified development of Western-style fast food, the RGM 2.0 strategy begins a new journey. Yum China entered the Chinese market in 1987. Over the past 30 years, it has been deeply involved in the Chinese restaurant market, continuously integrated into local culture and expanded. It has grown into the largest domestic restaurant chain, owning two major brands, KFC and Pizza Hut, and has laid out various segments such as hot pot, Mexican style restaurants, Chinese casual dining, and coffee through Little Sheep, Taco Bell, Huang Jihuang, and Lavazza. By the end of 2023, the company had a total of 14,644 stores, including 10296/3312 KFC and Pizza Hut respectively, and the company had 470 million+ members.
Leading peers in product strength, brand power, digitalization, and supply chain capabilities. ① Product strength: The classic product Evergreen is the basic market, and high-frequency promotion brings vitality; ② Brand power: KFC and Pizza Hut are leading Western-style fast food and casual dining leaders respectively; ③ Digitalization: binding members and delivery channels to drive sales growth, and the share of digital orders has grown from less than 50% to close to 90%; ④ Supply chain: A sound supply chain is the foundation for the company's product development and channel expansion. It is also a support for maintaining a long-term cost performance advantage.
Released the RGM 2.0 strategy, announcing that in the next three years, the company will accelerate store opening, increase profits, give back to shareholders, and return the strategic focus to growth. In September 2023, Yum China launched the RGM2.0 strategy, which focuses on accelerating store expansion, driving sales growth, and increasing profits. ① At the store opening level: the total number of stores is 20,000 by 2026; ② Financial level: in 2024-2026, system sales and operating profit achieved compound growth in units to double digits; ③ shareholder return: a significant increase in share repurchases plus double-digit dividend growth. The return for shareholders was approximately US$3 billion during the 2024-2026 period, doubling the shareholders' return amount in the past 3 years. ④ Capital expenditure: $3.5-50 billion in 2024-2026, including $25-30/7-10/5-10 billion for new stores and remodeled stores/supply chain/digitalization, respectively.
Profit prediction and investment advice: As a leader in the Chinese catering industry, the company occupies the minds of users through the two major brands KFC and Pizza Hut. The supply chain provides guarantees for the cost performance advantages and quality of products, and digitalization further enhances quality and efficiency. I am optimistic about the development opportunities of the sinking market after the price band of the company's products continues to decline. We expect the company's net profit to be 8.9/9.9/1.12 billion in 2024-2026. The current stock price corresponding to PE is 17/15/13 times, respectively, giving it a “recommended” rating.
Risk warning: Risks such as increased competition for fast food, rising raw material costs, and demand recovery falling short of expectations.