Guosen Securities issued a research report, indicating that Yum China (09987) achieved revenue of $3.07 billion in the third quarter, up by 5.4% year-on-year, with quarterly revenue reaching a historical high; core operating profit of $0.369 billion, up by 18.3%; adjusted net income of $0.297 billion, up by 19.8%, showing a faster growth rate compared to Q2 (revenue +1% / core operating profit +12% / adjusted net income +7%). In 2024Q3, raw materials / labor / rent increased by 0.6% / -0.2% / -0.3% respectively year-on-year, resulting in restaurant profit margin remaining flat at 17.0% year-on-year. However, the management expense ratio decreased by 1.3% year-on-year, optimizing significantly, driving the operating profit margin up by 0.4% year-on-year; the adjusted net margin was 9.7%, up by 1.2% year-on-year, reflecting improvements in cost and expenses and comprehensive contributions from Meituan investment income. In the first three quarters of 2024, the company achieved revenue of $8.71 billion, up by 2.6%; adjusted operating profit of $1.011 billion, up by 1.1%; adjusted net income of $0.796 billion, up by 8.0%, with year-on-year growth rates all turning positive.
The bank pointed out that in 2024Q3, the company's system sales increased by 4% year-on-year, benefiting from the contribution of new store openings; overall same-store sales decreased by 3% year-on-year, narrowing compared to Q24Q2 (-4%). Looking at different brands, KFC's same-store sales decreased by 2% year-on-year, narrowing compared to Q2 (-3%), with customer traffic (+1%) achieving positive growth for seven consecutive quarters, and discount reductions helping to narrow the decline in average customer spend (-3%) compared to Q2 (-7%); Pizza Hut's same-store sales decreased by 6% year-on-year, with a similar narrowing trend compared to Q2 (-8%), where the decrease in average customer spend (-9%) remained stable, as Pizza Hut continued to execute a high cost-performance ratio strategy, with customer traffic growth (+4%) improving compared to Q2 (+2%), demonstrating the continued effectiveness of the cost-performance ratio strategy.
The bank stated that in the third quarter of 2024, both same-store and new store performance continued to show strength and cost control effects exceeded expectations. Based on this, the bank maintained revenue forecasts for 2024-2026 at $11.779 / $12.898 / $14.098 billion, increased the forecasted net profit attributable to the parent to $0.903 / $0.985 / $1.07 billion (+2.6% / +2.8% / +2.3% adjustment), based on the latest share capital assumptions, EPS for 2024-2026 is projected as $2.37 / $2.59 / $2.81, corresponding to PE valuations of 19.4 / 17.8 / 16.4x. Reviewing Yum China's historical valuation levels, market tends to give the company a premium valuation when the operational performance turns around. Considering the company's stable and improving operational status and potential performance improvement expectations after the introduction of consumer promotion policies, a PE target of 23-25x for 2024 is given, with a corresponding target price of 423.7-460.6 Hong Kong dollars, still offering 18%-28% upside compared to the latest closing price. The company's "outperform market" rating is maintained, and a strong recommendation is continued.
