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Yum China Holdings Inc YUMC

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Morningstar’s Analysis

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Yum China's Investor Day Reinforces Unit Opening Opportunities; Common Prosperity Will Benefit KFC

Ivan Su Senior Equity Analyst

Analyst Note

| Ivan Su |

Yum China's 2021 investor day offered a number of new long-term financial targets, which all reinforce our wide moat rating and positive long-term bias. We continue to view Yum China as a safe way to gain exposure to the growth of the Chinese middle class over the next decade, presenting a compelling combination of free cash growth and capital allocation while avoiding regulatory risks tied to Chinese Internet names. We're raising our fair value estimate to USD 86 from USD 84 after the event to account for more rapid unit opening trends (implied by higher expansion capital expenditure guidance) and specialty coffee opportunities. While earnings trends could still be uneven over the near term due to COVID-19 lockdowns, we still see the stock as a solid long-term play, trading at 37% discount to our fair value estimate.

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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 Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 406,000