Caitong: YUM CHINA (09987) announces RGM 3.0 strategy, maintains "buy" rating.

Caitong released a research report stating that YUM CHINA (09987) maintains resilient growth in same-store sales, with continuous store expansion and a positive trend. The company is believed to have long-term leading scale, brand influence, industry management capability, and digital ability. The bank predicts that the company's net profit attributable to shareholders for 2025-2027 will be 920 million / 991 million / 1.057 billion US dollars respectively, with corresponding PEs of 19X / 17X / 16X, maintaining a "buy" rating. Caitong's main points are as follows: Company announces RGM3.0 strategy The company announced the RGM3.0 strategy at the investor day, continuing to focus on resilience, growth, and moat as the three core dimensions, upholding the strategy of "innovation and efficiency improvement", and adopting the concept of "front-end stratification, back-end aggregation". That is, through a combination of multiple brands and diverse product lines in the front-end, covering a wide range of consumer scenarios and customer groups; in the back-end, improving efficiency through cross-store and cross-regional resource sharing and integration to create stronger synergies. Accelerate store network expansion As of 3Q2025, the company had 17,514 stores nationwide, with a net increase of 1,119 stores in 2024. The company announced its future five-year growth target for stores: steadily advancing towards the goal of reaching a total of 20,000 stores by 2026; increasing the total number of stores to over 25,000 by 2028; striving to surpass 30,000 stores by 2030. In terms of franchise stores, by 2025, the percentage of franchise stores in the net increase of KFC and Pizza Hut stores is expected to reach 40%-50% and 20%-30% respectively. The company plans to gradually increase the proportion of franchise stores within the target range in the coming years. Shareholder return plan As of 3Q2025, the company had returned $950 million to shareholders in the first nine months, and is expected to return approximately $1.5 billion to shareholders for the full year of 2025. Building on the $1.5 billion returned to shareholders in 2024, the company targets to return $3 billion to shareholders between 2025 and 2026. Starting from 2027, approximately 100% of free cash flow, after deducting dividends paid to minority shareholders, will be returned to shareholders. KFC aims to surpass a profit of 10 billion yuan KFC added 992 new stores in the first nine months. By 2028, the company plans to increase the total number of stores by about one-third to over 17,000 and strive to surpass a profit of over 10 billion yuan, becoming the first domestic catering brand to achieve this milestone. Pizza Hut aims to double profits in five years Pizza Hut added 298 new stores in the first nine months. Over the next three years, Pizza Hut plans to add over 600 new stores each year, with the total number of stores surpassing 6,000 by 2028, and aiming to double operating profit by 2029 compared to 2024. Lavazza Coffee accelerates expansion in top-tier cities Lavazza Coffee is optimizing its store model to improve store profitability and drive growth through menu innovation and a rich food combination that supports localization. Over the next three to five years, Lavazza Coffee plans to accelerate expansion in first-tier cities and some second-tier cities, aiming to surpass 1,000 stores by 2029 and achieve retail sales of $60 million. Risk warning: Macroeconomic fluctuations, food safety, rising raw material prices, etc.