Core views
The company's 2023Q4 performance was excellent. The net increase in core brand stores reached a record high for the full year of 2023, and excellent performance in terms of company operations, restaurant profit margins, product innovation, digitalization and membership development, and shareholder feedback continued to improve. In 2024, KFC entered a new stage of 10,000 store development. The multi-brand strategy is gradually stabilizing, and expectations for new store openings and shareholder feedback continue to rise. It is expected that it will continue to benefit from the expansion of store coverage and the positive scale effects of various brands, and continue to improve the supply chain and core capabilities such as digitalization and refined operation.
occurrences
The company announced full-year operating results for 2023Q4 and 2023. The total revenue of 2023Q4 was US$2,493 million, +19% year-on-year. Net profit of US$97 million, +81% YoY; total revenue for the full year of 2023 was US$10.978 billion, +15% YoY, and net profit of US$827 million, +87% YoY.
Brief review
Excellent performance in the fourth quarter, and store openings and operations continued to improve throughout the year
The company's fourth-quarter system sales were +21% year-on-year, thanks to net store contributions of 12%, same-store sales growth of 4%, and a low base for the same period last year. 23Q4 core operating profit of US$111 million, +324% YoY. The restaurant's profit margin increased to 10.7%, +0.3 pct year over year. 23Q4 overall same-store sales were +4% YoY. Core brands are affected by factors such as product structure. Customer orders have declined, and transaction volume has increased significantly. Same-store recovery is expected to be stable in 23Q4 compared to 2019; for the whole of 2023, system sales were +21% year over year, same store sales were +7% year over year, and core operating profit reached US$1,121 million, +79% year over year.
In 2023, the company continued to promote shareholder feedback, giving back a total of US$833 million to shareholders through share repurchases and cash dividends, an increase of 25%. Digital order revenue surpassed $9.2 billion, and digital orders accounted for about 89% of the company's restaurant revenue. The total number of KFC and Pizza Hut members exceeded 470 million, an increase of 14% over the same period of the previous year. Membership sales account for approximately 65% of KFC and Pizza Hut system sales. 23Q4 added a net of 542 stores, with a net addition of 1,677 stores for the whole year, exceeding the annual opening target. Store growth was strong. At the same time, the company's operating side showed excellent performance. Same-store recovery, profit margins, product innovation, and digitalization continued to improve. The annual restaurant-level profit margin was 16.3%, surpassing the 16.0% level in 2019; by brand, KFC stores increased by 1202 stores throughout the year, a record high. The number of stores broke 10,000, annual same-store sales +7%, core operating profit margin +50%, and annual restaurant profit margin of 17.7%, year over year + 2.0pct In 2023, beef burgers sold over 100 million units, whole chicken sold over 50 million, and K-coffee sold over 190 million cups. The net increase of Pizza Hut stores for the year exceeded 400, a record high. Same-store sales were +6%, core operating profit +198%, and restaurant profit margin was 11.8%, +2.6 pct compared to 2022. In 2023, we will actively broaden the price range for products such as pizza.
The new stage of development takes into account quality and increases shareholder feedback
The company plans to add about 1,500 to 1,700 stores on a net basis in 2024. Considering the strong net increase in 2023, it has a strong foundation. At the same time, in 2026, the total number of stores planned to reach 20,000. It is expected that there will still be a process of speeding up store opening in the past two years, and brands other than core brands are also expected to develop steadily. Other brands added a net of 86 in 2023, Lavazza's total number of stores reached 122 at the end of the year, and a net increase of 37 in 2023. Same-store sales were +17%, and the average investment per store fell 20% year on year. Taco Bell has 120 stores, and 2024 focuses on food innovation and store model optimization. The number of Little Sheep stores is 163, profitable in 2023, and will develop packaged food and other businesses in 2024. Huang Jihuang has 631 stores, a net increase of 40, and the recruitment of franchisees was successful; in 2024, the company plans to have capital expenditure of US$70 to 850 million, and the system sales and operating profit from 2024 to 2026 will achieve compound growth in both numbers of years, and the profit per share will achieve compound growth in both digits over the years. Shareholders will be given back at least $3 billion in the form of quarterly cash dividends and share buybacks, and the 2024 plan is to give back shareholders $1.5 billion. The new stage of the company's development is still showing high-quality rapid development with enhanced core capabilities, and shareholder feedback is expected to continue to improve.
Investment advice: Net profit of US$914 million and US$1,015 million is expected from 2024 to 2025. The current stock prices correspond to PE at 19X and 17X, respectively, and maintain an increase in holdings ratings.
Risk analysis
1. The company's raw material costs may face some pressure, which in turn affects the level of restaurant profit margins, and there is uncertainty about the overall direction of fluctuation; 2. The sinking market space and effects may fluctuate, if the overall size of the store continues to expand, it may have a certain diversion impact and limited market growth space;
3. The development and cultivation of multi-brand strategies may fall short of expectations, and the second curve that may lead to growth is not particularly clear. The mainland model for new brands is expected to be refined and improved, and the specific cultivation results still need to be verified;
4. The demand side continues to be affected by the industry and competitive environment, as well as competition brought about by the rapid rise of Chinese fast food brands.