Northeast Securities released a research report stating that YUM CHINA (09987) remains a benchmark for localized Western fast-food operations in China, delivering substantial shareholder returns. The company's expansion into lower-tier markets through its "small town model" is progressing well, with its 2025 store-opening target likely to be achieved, paving the way for 20,000 stores in the future.

Since the beginning of 2025, YUM CHINA has demonstrated impressive same-store sales growth, outpacing the broader restaurant industry. The company benefits from favorable raw material costs, digital enhancements for delivery services, and streamlined operations, all of which are expected to drive marginal improvements in per-store profitability.

Northeast Securities forecasts YUM CHINA's net profit attributable to shareholders at $940 million, $990 million, and $1.05 billion for 2025-2027, respectively, with corresponding P/E ratios of 17.5x, 16.6x, and 15.7x. The firm maintains a "Buy" rating on the stock.

In its Q3 2025 earnings report, YUM CHINA posted total revenue of $3.21 billion (up 4% year-on-year excluding FX impact, in line with market expectations). Adjusted operating profit reached $400 million (vs. consensus of $398 million), up 8% excluding FX effects, while adjusted net profit stood at $282 million, with an adjusted net margin of 8.8%.

On the revenue front, system-wide sales grew 4% YoY in Q3, with KFC and Pizza Hut contributing +5% and +4%, respectively. Same-store sales rose 1%, driven by KFC's 2% growth (order volume +3%) and Pizza Hut's 1% increase (order volume +17%).

Operationally, restaurant margin improved by 0.3 percentage points to 17.3%, while operating margin expanded by 0.4 percentage points to 12.5%. Core operating profit climbed 8% to $400 million.

As of Q3 2025, YUM CHINA operated 17,514 stores, including 12,640 KFC, 4,022 Pizza Hut, and 852 other branded outlets. The company added a net 536 stores in Q3 (402 KFC, 158 Pizza Hut), bringing its year-to-date net openings to 1,119. With 70% of its full-year 1,600-1,800 store target already achieved, expansion has accelerated significantly, with KFC setting a record for fastest nine-month store growth.

Additionally, YUM CHINA returned $950 million to shareholders in Q1-Q3 2025, comprising $268 million in dividends and $682 million in share buybacks. The company plans to return $3 billion to shareholders in 2025-2026, with $1.5 billion targeted for this year—translating to an annualized return of approximately 9% based on current market capitalization.

Delivery sales surged 32% YoY in Q3, accounting for 51% of revenue, marking a decade of consistent double-digit annual growth in this segment.