Goldman Sachs released a report predicting Yum China's (09987.HK) (YUMC.US) second quarter performance to be announced at the beginning of next month. The bank predicts that quarterly sales will increase by 3.5% YoY, while restaurant profit and operating profit will decline by 13% and 11% YoY, respectively. Same-store sales of KFC's hometown chicken and Pizza Hut are expected to decline by 2% and 5% YoY, respectively, reaching 89% of pre-pandemic levels, lower than Q1's 90% and 92%, respectively.

In terms of store expansion, it is expected to open 400 net stores this quarter. Restaurant profit margin is expected to contract by 2.5 percentage points YoY to 13.5%, due to rising food and paper prices, market promotion activities, and declining same-store sales. Operating profit margin is expected to decline by 1.3 percentage points YoY to 8.3%, supported by cost savings.

The bank lowered its net profit forecast for the company from this year to 2026 by 4% to 5%, reflecting the downward revision of same-store sales and restaurant profitability forecast, as well as the decrease in interest income from shareholder return commitments. The bank maintains its investment rating of 'Buy' on the stock, based on the fact that the weak business performance has been reflected in the stock price, as well as cost control and shareholder return commitments made by management. The target price has been reduced from RMB 445 to RMB 406, and the target price of the US-listed ADS has been reduced from US$57 to US$52.