According to the report released by Huafu Securities, which covers Yum China (09987) for the first time, the company is given a 'buy' rating. Huafu Securities predicts that Yum China's net income attributable to the parent company will reach USD 887 million, USD 991 million, and USD 1.163 billion from 2024 to 2026, respectively, with a year-on-year growth rate of 7%, 12%, and 17%, respectively. Based on the strong recovery of the catering industry after the epidemic and the company's continuous acceleration of the franchise store layout to promote the sales growth of its products, the company is given a 2024 PE ratio of 22 times, with a corresponding target price of HKD 392.95.

Huafu Securities' main points are as follows:

As a leading player in the fast food industry, Yum China has built a high-quality development platform through its multiple brands working together.

The company operates many well-known catering brands, including KFC, Pizza Hut, and Taco Bell. As of March 2024, the company had 15,022 stores, with its fast food brands deeply rooted in the domestic market and its stores spread throughout the country, providing strong market foundation and customer demand stickiness. The brand strength supports the company's performance resilience, and in 2023, the company achieved a recovery in its performance, with a year-on-year increase in revenue of 14.72% and net income attributable to the parent company of 90%.

The recovery of the catering industry is led by the top players, and the improvement in chain operation rate enhances the company's overall competitiveness.

According to data from the National Bureau of Statistics, the national catering revenue in 2023 was CNY 5,289 billion, up 20.4% year-on-year. With strong economic resilience, the catering industry is leading the way in achieving revenue recovery after the epidemic. The catering industry has experienced the test of the epidemic, and the new business format has put forward new requirements for the company's operations, with competition focused on the deep layout of quality, standardization, and market penetration. Under the chain operation model, catering companies can quickly expand stores based on their brand advantages and achieve cost reduction and efficiency improvement based on their supply chain advantages.

Focusing on core competitive advantages and digitizing to enable high-quality development.

In addition to focusing on localizing products and enhancing the research and development capabilities to build product moats, the company strengthens its supply chain management, maintains stable development of the strong supply chain and logistics network, and reserves high-quality development backup forces through its talent management layout. By investing more in technology in the three aspects of ordering, payment, and membership system, the company's digital management layout enables high-quality development and further amplifies its competitive advantages.