Yum China (09987) achieved a record performance last year! It is expected to add a net of 1500 to 1700 new stores this year.

On February 7th, YUM CHINA (09987) announced its fourth quarter and annual reports for 2023, with several key performance indicators reaching record levels for the year. Calculated at fixed exchange rates, the company's system sales in 2023 increased by 21% year-on-year, and excluding incomparable factors, core operating profit increased by 79% year-on-year. The restaurant profit margin for the period reached 16.3%, exceeding and surpassing the level of the same period in 2019. By the end of 2023, the total number of stores reached 14,644, covering over 2,000 towns. On February 7th, YUM CHINA opened significantly higher in early trading, rising by 15.52%, and closed at HK$332.80, a 14.76% increase. Looking at the fourth quarter of 2023 alone, total revenue increased by 19% to HK$2.49 billion, or 21% growth without considering the impact of foreign exchange calculations; operating profit increased by 170% to US$110 million; core operating profit increased by 324%; and the restaurant profit margin expanded to 10.7%. Excluding items that affect the comparability at the restaurant level, such as temporary subsidies over the past two years and the impact of value-added tax deductions, the restaurant profit margin expanded by 170 basis points. In addition, in the fourth quarter of 2023, system sales grew by 21% compared to the same period the previous year, excluding the impact of foreign exchange calculations. This growth was mainly due to a 12% contribution from net new stores, 4% growth in same-store sales, and the low base effect caused by temporary store closures during the previous year's epidemic period. There were 542 net new stores opened this quarter. As of December 31, 2023, the total number of stores reached 14,644, with 10,296 KFC stores and 3,312 Pizza Hut stores. Regarding the performance of last year, Qu Cuirong, CEO of YUM CHINA, said that 2023 was a critical year for YUM CHINA. We not only demonstrated resilience during the epidemic, but also seized the opportunities brought about by the opening of the Chinese epidemic. In 2023, our system sales increased by 21%, outperforming the industry and setting new records for revenue and profit. In 2023, our cash dividends and share buybacks set new record highs since the spin-off listing. Meanwhile, thanks to the flexible store model, reduced investment per store, and optimization of store profitability, the payback period for new stores of YUM CHINA remains at a healthy level, 2 years for KFC and 3 years for Pizza Hut. Looking ahead to 2024, YUM CHINA stated that the company is optimistic about the huge growth opportunities in China and expects to net add 1,500 to 1,700 new stores this year. The healthy return on new stores allows the company to continue to expand its business with confidence and achieve the goal of reaching 20,000 stores by 2026. Qu Cuirong said, "We are very optimistic about the vast growth opportunities in the Chinese market. Currently, we only serve one-third of the Chinese population, and our ambition is to serve half of the Chinese population by 2026. Currently, more than half of our new stores are located in lower-tier cities to meet the demand brought about by long-term consumption upgrades in these areas. With innovative products, engaging activities, and expanded price ranges, we continue to expand our target market and gain sales incremental in all tier cities. Leveraging our unique advantages, including deeply rooted brand in the Chinese market, excellent flexibility, and strong operational execution, we are prepared to achieve our growth goals for 2024 to 2026 and create substantial returns for shareholders through increased cash dividends and enhanced share buybacks." It is understood that in 2023, YUM CHINA's two major brands, KFC and Pizza Hut, both reached the milestone of "ten thousand stores" and exceeded 3,000 stores. As China's largest chain fast-food brand, KFC now has 10,296 stores in over 2,000 towns, and is tracking over 1,000 potential cities for new store openings. In recent years, YUM CHINA has significantly accelerated the pace of store expansion. In 2023, the company's system sales increased by 21% year-on-year, mainly due to a 9% contribution from new store additions; in terms of store numbers, the net increase in new stores in 2023 exceeded 13%, and this fast-paced opening trend will continue in 2024. In addition to its strong performance, YUM CHINA also created lucrative investment returns for investors. In 2023, the company returned $833 million to shareholders through cash dividends and share buybacks, a 24.7% increase year-on-year, achieving significant growth for three consecutive years, a 7.2-fold increase from the $102 million in 2020. At current exchange rates, $833 million can be converted into over HK$6.5 billion, exceeding the total market value of most catering companies listed on the Hong Kong stock market. It is worth noting that such generous shareholder returns will continue for a long time in the future. YUM CHINA announced on November 16, 2023, that the company will return $3 billion to shareholders through dividends and share repurchases from 2024 to 2026. In 2024, the company plans to further increase its shareholder returns: the board of directors announced that the cash dividend per share for YUM CHINA common shares will increase by 23% to $0.16, and will be paid to shareholders registered before the closing time on March 5, 2024, on March 26, 2024. Looking ahead, the Chinese catering market is undergoing profound changes. According to data from the National Bureau of Statistics, in 2023, the national catering revenue exceeded 5.2 trillion yuan, a year-on-year increase of 20.4%. On February 6th, a press conference was held to ensure market supply during the Spring Festival and promote holiday consumption. At the meeting, Sheng Qiuping, Deputy Minister of Commerce, stated that the Ministry of Commerce will improve supportive policies, formulate policy measures to promote the development of service consumption, and issue policy documents to support the high-quality development of the catering industry. By building platforms and implementing actions to improve the quality and quantity of service consumption, activities such as the "Service Consumption Season" and the "Chinese Cuisine Expo" will be held. Several interviewed catering companies and industry association officials have stated that as an important part of consumption, the catering industry's growth rate led other industries for the whole year of 2023, indicating a significant recovery and strengthened development confidence in China's catering industry. In terms of the overall consumption environment in the Chinese market, returning to affordability and high cost performance has become the mainstream of catering consumption in the past year, to some extent.The "Crazy Thursday" and other affordable meal package strategies have also stimulated the growth of KFC's performance, attracting countless new customers. Yum China's Chief Financial Officer Joey Wat pointed out during the financial report meeting that this pricing strategy is aimed at expanding market coverage, especially in some smaller cities. By offering more products, expanding price ranges, providing more choices for consumers, they aim to drive transaction volume and sales growth.From an industry perspective, chain restaurant brands with huge economies of scale have a cost advantage, allowing them to more effectively capture market share. Large chain restaurants have stronger risk resistance compared to small eateries, making them advantageous during periods of low consumer growth, and driving an increase in the overall chain restaurant market. This may be one of the reasons why YUM CHINA is aiming for ten thousand stores and looking towards expanding to over twenty thousand stores in the future.