Guosen: Maintains YUM CHINA (09987) "Outperform" rating as store expansion accelerates in 2026.

Guosen released a research report stating that considering the resilience growth maintained in the same store for three consecutive quarters, it raised YUM CHINA's (09987) 2026-2027 net profit forecast to 10.19/11.06 billion US dollars (adjusted by +2.6%/+3.8%), and added a 2028 net profit forecast of 11.70 billion US dollars, corresponding to a PE valuation of 17.4/15.2/13.8x. The company's expansion plan is solid, and with the innovation in take-out and business format products in the future, same store sales are expected to continue to show improved trend, steadily advancing shareholder returns also contribute additional attractions, maintaining the company's "outperform the market" rating. Key points from Guosen are as follows: - Same store net profit increased by 22% in 2025Q4. - In 2025Q4, the company achieved revenue of 2.823 billion US dollars (+8.8%); operating profit of 187 million US dollars (+23.8%); net profit attributable to owners of 140 million US dollars (+21.7%); and EPS of 0.40 US dollars. In terms of brands, in 2025Q4, KFC revenue was 2.125 billion US dollars (+8.75%); operating profit of 223 million US dollars (+16.1%); and operating profit margin of 10.5% (+0.7 pct). Pizza Hut revenue was 540 million US dollars (+5.9%); operating profit of 20 million US dollars (+42.9%); and operating profit margin of 3.7%, a year-on-year increase of +1.0 pct. In terms of channels, take-out revenue increased by 34% year-on-year, with growth continuing to rise, and restaurant revenue accounting for 53%. - The core brand maintains resilient growth in the same store. - In 2025Q4, system-wide sales increased by 7%, with KFC and Pizza Hut increasing by 8% and 6% respectively; overall same store sales increased by 3%, maintaining positive growth for three consecutive quarters. In terms of brands, KFC and Pizza Hut each increased by 3% and 1%, with KFC transaction volume/customer price increasing by 3%/0%, and Pizza Hut implementing a high cost-effective product strategy with a decrease in customer price year-on-year, and transaction volume recovering well with an increase of 13%. Looking ahead to 2026, the company expects same store sales to stabilize and increase, with transaction volume continuing to rise as the core DRIVE. - 587 new stores were added in 2025Q4, and the franchise proportion continued to increase. - At the end of 2025, the total number of company stores reached 18,101, with KFC and Pizza Hut having 12,997 and 4,168 stores respectively. In 2025Q4, the company added 587 new stores in a single quarter, with KFC and Pizza Hut adding 357 and 146 stores respectively. The proportion of franchise stores for KFC and Pizza Hut at the end of 2025 reached 15% and 8% respectively. - Increase in take-out proportion, rise in labor costs, and excellent restaurant profit margin performance. - In 2025Q4, wages and employee benefits accounted for approximately 29.3%, a year-on-year increase of +1.1 pct, with the increase in take-out revenue leading to a rise in delivery rider costs; food and raw materials accounted for 31.7%; property rent and other operating expenses accounted for approximately 26.0%, with the company's restaurant profit margin being 13.0%, a year-on-year increase of +0.7%, driven by income leverage leading to margin improvement; management expenses ratio was 6%, flat year-on-year. - It is expected that the net addition of stores will exceed 1,900 in 2026. - The company announced a shareholder return of approximately 1.5 billion US dollars in 2026, with an average annual shareholder return expected to be between 9 billion and over 10 billion US dollars in 2027-2028, and exceeding 10 billion US dollars in 2028. The total number of stores at the end of 2026 is expected to exceed 20,000, with a net addition of over 1,900 in 2026, with franchise stores accounting for 40-50% of the net addition for KFC and Pizza Hut stores. Risk Warning: Decline in consumer spending power, ineffective sinking effect, slower than expected brand incubation, and increased industry competition.