Daily Investment Strategy

Daily focus：Yum China（9987）

Yum China's system sales for the 4Q24 increased by 4% yoy, primarily due to a 5% contribution from net new unit. Operating profit increased by 36% yoy to $151mn. Core operating profit increased by 35% yoy. Thanks to continuous efforts to improve operational efficiency, the operating profit margin was 5.8%, an increase of 140 basis points yoy, benefiting from the increase in restaurant profit margins. The company stated that the proportion of management and administrative expenses to revenue this year will decrease slightly, and the core operating profit margin is expected to remain relatively stable or slightly increase. The goal is to maintain KFC's healthy profit margin and continuously improve Pizza Hut's profit margin in the medium and long term. It is estimated that there will be a net increase of 1,600 to 1,800 stores in 2025. The company is constantly increasing the number of directly operated and franchised stores, and is steadily moving towards the goal of achieving 20,000 stores in 2026. Franchisees enable the Company to expand into remote areas, lower-tier cities and strategic locations previously beyond its reach.  The Company anticipates the franchise mix of net new stores will gradually increase to 40-50% for KFC and 20-30% for Pizza Hut over the next few years. Yum China stated that it plans to return US$4.5 billion to shareholders between 2024 and 2026, which means a total return of US$3 billion in the next two years, equivalent to approximately 9% of the company's average annual market value. Since the end of last year, we have noticed that the price cut of Tastien, one of the KFC's largest competitors, has slowed down, which is beneficial to Yum China. In recent years, price competition in the Chinese restaurant market has been fierce, but the current situation has improved. Management also stated that some existing competitors have recently begun to rationally adjust their promotion intensity, which shows a positive change in the competitive environment. Overall, the group's operating efficiency has improved, and Pizza Hut WOW and KCOFFEE have successfully attracted new customers. The share is outstanding when compared to its peers in the consumer sector. Target price is HK$460.

In January, the Consumer Price Index (CPI) rose as expected

China's National Bureau of Statistics announced that the CPI increased by 0.5% year-on-year in January, higher than the market expectation of 0.4% and the previous value of 0.1%. Month-on-month, it rose by 0.7%, slightly below the market expectation of 0.8%. Core inflation increased by 0.6% year-on-year and 0.5% month-on-month. On the other hand, the Producer Price Index (PPI) for industrial products remained unchanged year-on-year at -2.3%, slightly lower than the market expectation of -2.2%. Among these, the performance of consumer goods was better, with the annual decline continuing to narrow to -1.2%, while means of production declined by -2.6% year-on-year.

On Friday, there was a net inflow of 1.06 billion HKD through the Hong Kong Stock Connect. Among the stocks, Alibaba (9988) saw the largest inflow at 1.68 billion HKD, followed by Lenovo Group (992). Tencent Holdings (700) had the largest net outflow at 1.02 billion HKD, followed by China Mobile (941).