Soochow: Maintain a "buy" rating on YUM CHINA (09987) with a stable high dividend yield leader.

Soochow released a research report stating that considering the strong momentum of YUM CHINA's new brand stores, it has adjusted the company's net profit forecast for the years 2026-2027 to 10.43/11.44 billion US dollars (previous value 9.89/10.59 billion US dollars) and added a profit forecast of 12.63 billion US dollars for 2028, with a year-on-year growth of 12.24%/9.69%/10.41%. The corresponding current PEs are 19.31x/17.61x/15.94x. The company's fundamentals are robust, with high dividends, and the "buy" rating is maintained. Main points of Soochow: YUM CHINA releases 2025Q4 and full-year earnings report In 2025, full-year system sales revenue/total revenue increased by 4%/4% year-on-year; 25Q4 system sales revenue/total revenue increased by 7%/9% year-on-year, exceeding the bank's previous expectations; Key points: KFC: In 2025, full-year system sales revenue/total revenue increased by 5%/4% year-on-year, 25Q4 system sales revenue/total revenue increased by 8%/9% year-on-year; Pizza Hut: In 2025, full-year system sales revenue/total revenue increased by 4%/3% year-on-year, 25Q4 system sales revenue/total revenue increased by 6%/6% year-on-year. Adjusted net profit for 2025 full year/2025Q4 increased by 2%/24% respectively year-on-year, 25Q4 adjusted profit exceeded the bank's previous expectations, attributed to factors like automation systems, Lean operations, and optimization of raw material prices; aided by improvements in food and packaging, property rental, and other operating expenses, restaurant profit margins increased by 0.6%/0.7% year-on-year to 16.3%/13%, where: KFC full year/25Q4 operating profit increased by 8%/16%, restaurant profit margins increased by 0.5%/0.7% year-on-year to 17.4%/14.0%; Pizza Hut full year/25Q4 operating profit increased by 19%/52%, restaurant profit margins increased by 0.8%/0.6% year-on-year to 12.8%/9.9%. Restaurant numbers meet growth plans By the end of 2025, the company's total number of stores reached 18,100 (net addition of 1,706/587 stores for the full year/Q4), with KFC/Pizza Hut stores numbering 13,000/4,200, with a net addition of 1,349 (504 franchise stores)/444 (139 franchise stores) for the year. Significant improvement in same-store sales In 2025, full-year/2025Q4 same-store sales increased by 1%/3% respectively, with KFC/Pizza Hut same-store sales increasing by 1%/1% respectively, and the company's overall same-store sales/same-store transaction volume continued to grow year-on-year for three quarters/twelve quarters. Where: KFC in 25Q4 saw same-store sales/same-store transaction volume/average transaction value increase by 3%/3%/flat; Pizza Hut in 25Q4 saw same-store sales/same-store transaction volume/average transaction value increase by 1%/13%/-11%, mainly due to the company offering more value-for-money products. Positive outlook for 2026 By 2026, the total number of stores will exceed 20,000 stores (with a net addition of over 1,900 stores); by 2030, the number of stores will exceed 30,000 stores; Franchise stores will account for 40-50% of the new KFC and Pizza Hut stores; Capital expenditure will be 6-7 billion US dollars; Returning 1.5 billion US dollars to shareholders in 2025 (cash dividends/stock repurchases of 3.53/11.4 billion US dollars), with a dividend yield of nearly 8%. Risk warning: Risks of fluctuating raw material prices, food safety risks, and increased industry competition.