Main points of investment:
The combination of Chinese and Western multi-brand catering bibcock. Since the first KFC opened in China in 1987, the company has been deeply cultivated in China for more than 30 years. According to the company's annual report citing Frost Sullivan's report, the company is the largest catering company in China in terms of system sales in 2020. Yum China was named the leader of the catering and leisure industry in the Dow Jones Sustainability Index (DJSI) in 2020. The company's flagship brands include KFC, Pizza Hut, emerging brands Little Sheep, Huang Jihuang, COFFii & JOY, Oriental White, Taco Bell and Lavazza.
As of December 31, 2020, the company has a total of 10506 restaurants, of which direct sales account for more than 75%.
1 income & profit: the total operating income, adjusted operating profit and adjusted return net profit CAGR for 2016-2019 were 7.4%, 12.0% and 15.9% respectively. Affected by COVID-19 's epidemic situation, the annual income of US $8.26 billion decreased by 6%, the adjusted operating profit of US $732 million decreased by 20%, and the adjusted return net profit of US $615 million decreased by 16%, of which KFC Pizza Hut contributed more than 90% of its income. The revenue of directly operated restaurants accounted for 89.5%. 2 fundraising projects: on September 10, 2020, the company relisted on the Hong Kong Stock Exchange and issued 41.91 million shares at a price of 412 Hong Kong dollars per share to raise US $2.2 billion to expand the restaurant network (45%). Invest in digital and supply chain, food innovation and quality assets (45%), replenish working capital (10%).
The scale of the industry continues to grow, and the degree of chaining and concentration is expected to increase. 1 the market is broad and dispersed: according to the Sullivan report quoted in the company's prospectus, the market size of China's catering industry is expected to increase from 4.67 trillion in 2019 to 6.61 trillion in 2024, with a CAGR of 7.2%. Due to the large number of cuisines and obvious regional differences, China's catering industry is naturally scattered. In 2018, China's catering CR5 is only 2%, far lower than 20% in Russia and 15% in the United States, and there is much room for improvement compared with Japan and South Korea. (2) the space for chain is large, and the growth rate of fast food and western food is fast: in 2019, the proportion of chain restaurants in China is far lower than that in the United States, which is 73.8%. According to the company's prospectus, citing the Sullivan report, China's self-owned restaurant chain is expected to have a CAGR of 9.1% in 2019-2024, which is faster than joining restaurants and non-chain restaurants. We believe that large restaurant chains are expected to be the first to benefit and increase the concentration of the industry. The accelerated pace of life and younger consumers drive the demand for eating out, among which fast food and western food are growing rapidly, and the proportion is increasing year by year. 3 companies take the lead in fast food and leisure food: KFC ranks first in fast food, Pizza Hut and Huang Jihuang in leisure food respectively.
Food and beverage pioneers create excellent value. (1) the core competitiveness is significant. I innovation ability: continue to launch new products, maintain brand excellence and brand attractiveness; ii digitization: as of December 2020, KFC / Pizza Hut membership program each has 275 million / 85 million members, and the proportion of member revenue in 2020 accounts for 62%, 52% and 67% of digital orders, respectively. Iii takeout: 21% of takeout revenue in 2019, further increased to 30% in 2020 under the influence of the epidemic. (2) from the point of view of a single store. Same-store sales fell due to temporary closures and promotions due to the epidemic, and restaurant profit margins fell in 2020 compared with 2019, but the impact was partly offset by increased productivity and subsidies provided by landlords and the government. (3) the angle of opening a store. With the accelerated growth of the number of KFC restaurants, Pizza Hut has entered a period of store adjustment and expanded mainly to join in 2018-19 and self-management in 2020. The company accelerated the channel sinking. By the end of 2020, KFC / Pizza Hut low-line stores accounted for 56% and 42% respectively. In August 2020, KFC launched a small-town model store to further develop the county.
Profit forecast and valuation. The estimated net profit for 2021-23 is US $834 million, US $965 million and US $1.096 billion respectively, up 6.3%, 15.7% and 13.7% respectively over the same period last year; corresponding to EPS of US $1.98, US $2.29 and US $2.61 respectively. In terms of 1HKD=0.1288USD, 35-40 times PE, in 2021 is given a reasonable value range of HK $538.8-HK $615.8, with a "better than the market" rating for the first time.
Risk tips. Food safety issues, the termination of franchise agreements, the risk of increased competition.