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Yum China Holdings Inc - Stock Quote YUMC

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Morningstar's Yum China Holdings Inc Stock Analysis

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Yum China Faces Short-Term COVID-19 Headwinds, but Long-Term Outlook Remains Unchanged

Ivan Su Senior Equity Analyst

Analyst Note

| Ivan Su |

Wide-moat Yum China delivered operating income of $191 million for the first quarter of 2022, coming at the top end of the guidance range. Management's overall message is consistent with previous commentary made in March, pointing to an unprecedented number of challenges brought on by the omicron outbreak. The restaurant group is weathering traffic weakness due to widespread lockdowns, but we continue to view this as a short-term challenge and remain confident in the firm's long-term outlook. KFC remains absent in more than 1,000 cities, and the company has additional opportunities to increase store density in the 1,700 Chinese cities in which it currently operates. The rising demand for fast food further supports long-term trends such as longer working hours, rapidly rising disposable income, and ever-smaller family sizes. Although China's zero-COVID-19 policy remains the most significant near-term risk to earnings, we remain confident that Yum China will pull through the current industry headwinds and become a stronger and more agile business. We consider the recent share price performance an overreaction to near-term weakness, and we view shares as heavily undervalued—trading at a 50% discount to our fair value estimate of HKD 670 (USD 86).

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Yum China Holdings Inc's Company Profile

Business Description

With almost 10,600 units and USD 9.5 billion in systemwide sales in 2020, Yum China is the largest restaurant chain in China. It generates revenue through its own restaurants and franchise fees. Key concepts include KFC (7,166 units) and Pizza Hut (2,355), but the company's portfolio also includes other brands such as Little Sheep, East Dawning, Taco Bell, Huang Ji Huang, COFFii & Joy, and Lavazza (collectively representing about 985 units). Yum China is a trademark licensee of Yum Brands, paying 3% of total systemwide sales to the company it separated from in October 2016.

20 Tian Yao Qiao Road, Yum China Building
Shanghai, 200030, China, People's Republic of
T +86 2124077777
Sector Consumer Cyclical
Industry Restaurants
Most Recent Earnings Mar 31, 2022
Fiscal Year End Dec 31, 2022
Stock Type Cyclical
Employees 450,000

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