EB Securities: Maintains "buy" rating for YUM CHINA (09987) Both core brands still have some growth potential in channel sinking.

EB SECURITIES releases a research report stating that it maintains YUM CHINA (09987) 2026-2027 net profit attributable to shareholders forecast at 1.002/1.074 billion US dollars, equivalent to EPS of 2.53/2.77/2.97 US dollars for 2025-2027. The current stock price corresponds to PE ratios of 17x/16x/15x for 2025-2027. The company is a leading Western fast food enterprise with strong digital and supply chain capabilities. Its two core brands still have some growth potential in channel expansion. The company maintains a "buy" rating. Main points of EB SECURITIES: Event: Company achieved revenue of 3.21 billion US dollars in Q3 25, a year-on-year increase of 4% (or 4%, excluding the impact of exchange rate fluctuations), achieving an adjusted net profit of 282 million US dollars; achieving a core operating profit of 399 million US dollars, a year-on-year increase of 8% (excluding the impact of exchange rate fluctuations), with a core operating profit margin of 12.5%, a year-on-year increase of 0.4 percentage points. Comparable store sales growth, significant acceleration in store openings In terms of store operations, system sales in Q3 25 increased by 4% year-on-year (KFC/Pizza Hut increased by 5%/4% respectively), while comparable store sales in Q3 25 increased by 1% year-on-year (KFC/Pizza Hut increased by 2%/1% respectively). In Q3 25, KFC comparable transaction volume increased by 3% year-on-year, with the decrease in average transaction value mainly due to the rapid growth of small orders. The delivery business performed strongly, with a 33% year-on-year increase in delivery sales in Q3 25, accounting for 51% of KFC restaurant revenue. Pizza Hut's comparable transaction volume in Q3 25 increased by 17% year-on-year, achieving growth for the tenth consecutive quarter, and the decrease in transaction value year-on-year is in line with the company's strategy of providing more cost-effective products. The company aims to achieve comparable store sales in Q4 25 close to the same level as the previous year, with a target of maintaining mid-single-digit growth in system sales for the whole year. In terms of store openings, a net increase of 536 stores in Q3 25 (KFC/Pizza Hut increased by 402/158 respectively); the total number of restaurants at the end of the period was 17,514 (KFC/Pizza Hut were 12,640/4,022 respectively). The company maintains its guidance of adding 1,600-1,800 stores in 2025, with franchise stores accounting for 41% and 28% of the net increase in KFC and Pizza Hut stores in the first three quarters of 2025. Operational efficiency improvement, restaurant profit margin improvement in Q3 25 The proportion of food and packaging materials to restaurant income in Q3 25 was 31.3%, mainly benefiting from supply chain efficiency optimization and lower raw material prices. The proportion of salaries and employee benefits to restaurant income in Q3 25 was 26.2%, a year-on-year increase of 1.1 percentage points, mainly due to the growth of the delivery business leading to an increase in rider costs. The proportion of rent and other costs to restaurant income in Q3 25 was 25.2%, mainly benefiting from the optimization of rent and store capital expenditure. Overall, the restaurant profit margin in Q3 25 was 17.3%, a year-on-year increase of 0.3 percentage points (KFC/Pizza Hut were 18.5%/13.4% respectively, with a year-on-year increase of 0.2/+0.6 percentage points respectively). Adjusted net profit in Q3 25 was 282 million US dollars. The company expects core operating profit margin to increase year-on-year in the second half of 2025, with Q4 25 expected to remain basically flat year-on-year against a high base. Significant results from new store types and new products Positive progress has been made in new businesses this year: 1) KFC Coffee: The total number of KFC Coffee stores in Q3 25 has exceeded 1,800, far exceeding the original plan. 2) KPRO: The health-focused KPRO has opened more than 100 stores in first-tier cities. 3) WOW: Pizza Hut WOW stores have expanded to 250 stores and have entered 40 new markets without Pizza Hut brands, effectively helping the brand enter lower-tier markets. Product focus on core products, limited-time products, and entry-level products to jointly drive performance growth 1) Core products: KFC launched Crispy Chicken Wings to consolidate the core position of chicken wings in Q3 25; Pizza Hut's pizza accounts for over 40% of total sales, with revenue in Q3 25 achieving double-digit growth, and the new handmade thin-crust pizza has received high praise, with strong repeat purchases and quickly becoming the best-selling crust. 2) Limited-time products: the company selectively launches limited-time products to promote repeated store visits, such as the Spicy Beef and Pickled Lotus Root, which became the best-selling beef limited-time product in the past four years. 3) Entry-level products: sales of KFC's entry-level combos and Pizza Hut's entry-level pizzas achieved double-digit growth in the first three quarters of 2025, with KFC exploring combos under 20 yuan through certain channels to further expand its customer base.