Guosen Securities reiterated its "Outperform" rating on YUM CHINA (09987), adjusting its 2025-2027 net profit forecasts to $927 million, $993 million, and $1.066 billion (revised by -2.0%/0%/0%) while accounting for share repurchases. EPS estimates stand at $2.62, $2.95, and $3.30. Operational efficiency improvements drove steady profit growth, with expansion plans remaining prudent. The firm expects sustained same-store sales recovery fueled by delivery and product innovation, alongside progressive shareholder returns.
Key highlights: - **Q3 2025 Performance**: Revenue rose 4.4% YoY to $3.206 billion, with operating profit up 7.8% to $400 million, driven by restaurant efficiency gains. Net profit fell 5.1% to $282 million due to a $10 million pre-tax investment loss (primarily from Meituan’s stock volatility; Q3 2024 saw a $34 million gain). EPS was $0.77. - **KFC**: Revenue grew 4.0% to $2.404 billion; operating profit rose 5.5% to $384 million (16.0% margin, +0.2 ppts). - **Pizza Hut**: Revenue increased 3.3% to $635 million; operating profit jumped 9.6% to $57 million (8.9% margin, +0.4 ppts). - **Delivery**: Sales surged 32% YoY (51% of revenue vs. 45% in Q2).
- **Same-Store Sales**: System-wide sales grew 4% (KFC +5%, Pizza Hut +4%), with overall same-store sales up 1% (Q1/Q2: 0%/1%). KFC’s traffic/ASP rose 3%/fell 1%, while Pizza Hut’s traffic rebounded 17% despite lower ASPs.
- **Expansion**: Net store additions totaled 536 in Q3 (1,119 YTD), keeping the 2025 target of 1,600–1,800. Total stores reached 17,514 (KFC: 12,640; Pizza Hut: 4,022). Franchise mix rose to 41% (KFC) and 28% (Pizza Hut). Membership hit 575 million (57% of sales).
- **Efficiency**: Labor costs edged up 1.1 ppts to 26.2% (delivery rider expenses), while food costs (31.3%, -0.4 ppts), rent (25.2%, -1.0 ppts), and overheads (4.7%, -0.3 ppts) improved.
- **Innovation & Returns**: K Coffee surpassed 1,800 stores, exceeding guidance, while K Pro outlets expanded to 100. The $1.5 billion shareholder return program (dividends/buybacks) is on track.