Event Overview: 24Q2 achieved revenue of 2.68 billion US dollars, a year-on-year increase of 4% (excluding the impact of foreign currency conversion), and operating profit increased 7% year over year to 0.266 billion US dollars (excluding foreign currency conversion effects), all of which hit new highs in the second quarter; core operating profit increased 12% year over year to 0.275 billion US dollars.

Expanding the store led to an increase in system sales. KFC's basic quarterly system sales increased 5% year-on-year in the case of a high base last year, mainly due to a net additional store contribution of 8% this quarter; Pizza Hut's system sales for the current quarter increased 1% year-on-year in the case of a high base, mainly due to a net increase of 8% of new stores this quarter.

24Q2 net added 401 stores, of which the net increase of franchise stores accounted for 25%, and the total number of stores reached 15,423; of these, KFC Q2 net opened 328 stores (23% of franchisees) to 10,931, and Pizza Hut net opened 79 to 3504 stores.

Same-store operations were steady, and core operating profit increased by double digits over the same period last year. 2024Q2's same-store sales recovered to 96% in the same period last year. Among them, KFC/Pizza Hut was -3%/-8%, respectively; the profit margin of the 2024Q2 restaurant was 15.5%, which was the same year on year under a comparable scale, mainly due to efficiency improvements.

Digital orders account for 90%, and members contribute nearly 70% of sales. By the end of June 2024, the total number of KFC and Pizza Hut members exceeded 0.495 billion. Member sales accounted for 65% of system sales, and digital orders (digitally traded sales at the company's own stores) accounted for about 90% of KFC and Pizza Hut restaurant revenue.

Outlook: 1) The company will guide the number of stores opened in 2024 to 1,700 (unchanged), up from 1400-1600 in 2023; 2) Capital expenditure will be between 0.7 billion and 0.85 billion US dollars, and shareholders will be given back 1.5 billion US dollars in the form of quarterly cash dividends and stock repurchases.

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. The company follows consumer trends and continues to launch cost-effective products and innovative store types. Kenyue Coffee collaborates with KFC, and the Pizza Hut WOW store focuses on cost performance and light service, bringing new perspectives on growth. We expect the company's net profit to be 0.87/0.96/1.06 billion US dollars in 2024-2026. The current stock price corresponds to PE 15/14/12 times, respectively, to maintain the “recommended” rating.

Risk warning: Consumption recovery falls short of expectations, industry competition intensifies, food safety and other risks.