Incident Overview

The company announced results for the third quarter of 2024. 2024Q3 achieved revenue of 3.07 billion US dollars/ +5% (+4% year over year), net profit of 0.297 billion US dollars/ +22% (not including exchange rate effects, +21% year over year), and adjusted net profit of 0.297 billion US dollars/ +20% (without exchange rate impact, +19% year over year).

With 2024Q3, the company gave back approximately $0.248 billion to shareholders in the form of share repurchases and cash dividends. In the first three quarters, the total return to shareholders was 1.24 billion US dollars, which is nearly three times that of the same period last year.

Analytical judgment

Q3 Same-store decline narrowed month-on-month, and store expansion progressed steadily

2024Q3, the company's overall sales, +4%/+6%/+2% year over year, were mainly due to the increase in same-store transaction volume and the contribution of new store openings; same-store sales were -3%/-2%/-6% year over year, and the decline narrowed month-on-month. In terms of split volume and price, the unit price of KFC/Pizza Hut was -3%/-9% year on year, and transaction volume was +1%/+4% year on year. 2024Q3 added 438 net stores (KFC/Pizza Hut net addition of 352/102, respectively), with a net increase of 145 franchisees, accounting for 33%; by the end of September 2024, the total number of company stores reached 15,861, of which 11283/3606, respectively.

Q3 Restaurant profit margins remained steady, and management expense ratios declined

2024Q3, the company's operating profit margin was 12.1% /+1.0pct, and the restaurant profit margin was 17.0%/the same year on year (+0.5pct excluding the 15 million dollar project affecting comparability at the restaurant level). Among them, the profit margins of KFC and Pizza Hut restaurants were 18.3%/12.8%, respectively, -0.3 pct/+0.1 pct year over year (+0.3 pct/+0.6 pct, respectively, excluding items affecting comparability at the restaurant level), mainly due to improved operating efficiency. 2024Q3, the share of the company's food and packaging costs/labor costs/rent and other expenses, +0.6pct/-0.2pct/-0.4pct, respectively. It is mainly due to an increase in cost-effective products and an increase in wage costs, and the management cost ratio is 4.5% /-1.3 pct.

Accelerate the expansion of franchise stores and enhance shareholder returns

Looking forward to the future, the company will maintain its goal of adding about 1500-1,700 stores in 2024, and accelerate the pace of franchise store expansion through a store model adapted to local conditions. It is expected that in the next few years, the proportion of franchise stores will gradually increase to 40% to 50% of KFC's net new stores, while Pizza Hut will increase to 20% to 30%. While continuing to invest in business growth, the company will continue to work to return excess cash to shareholders. It plans to increase the amount of shareholder rewards from $3 billion to $4.5 billion between 2024 and 2026, of which $1.5 billion will be given back to shareholders in the form of quarterly cash dividends and share repurchases in 2024.

Investment advice

Taking into account the company's same-store performance, store opening structure and current macro-consumption environment since this year, we adjusted our previous profit forecast. We expect revenue for 2024-2026 to be 11.333/12.248/13.281 billion US dollars (the original forecast was 11.697/12.847/14.129 billion US dollars), and net profit to mother of 0.901/0.989/1.08 billion US dollars, respectively (the original forecast was 0.853/0.955/1.042 billion billion) USD), the latest stock price (closing price of HK$385.80 on November 5, exchange rate of 1HKD=0.13USD) corresponds to PE of 21/19/18X, respectively, maintaining the company's “gain” rating.

Risk warning

The macroeconomic economy is declining, industry competition is intensifying, food safety risks, and store expansion falls short of expectations.