Guosen: Maintain YUM CHINA (09987) rating of "outperform market" as the annual store opening and shareholder return plan steadily progresses.

Guosen released a research report stating that based on YUM CHINA (09987), same-store sales in 2026Q1 remained healthy, and store opening plans steadily progressed. They maintained their forecast for YUM CHINA's net profit attributable to mother for 2026-2028 (in USD) at 1.019 billion/1.106 billion/1.17 billion, corresponding to PE multiples of approximately 16.5/14.4/13.1. Under the trend of cost-effective consumption, the company, with its own cost management capabilities, effectively adjusted product structure and pricing strategies, continued to drive growth in same-store transaction volume, demonstrating operational resilience. At the same time, the company's shareholder returns are rich, steadily advancing towards the target of returning $1.5 billion to shareholders in 2026, which accounts for about 9% of the latest market value. They maintain an "outperform the market" rating. Guosen's main points are as follows: - Operating profit increased by 12% in 2026Q1 - In 2026Q1, the company achieved revenue of $3.271 billion, up 10% year-on-year; operating profit of $0.447 billion, up 12% year-on-year; net profit attributable to the mother of $0.309 billion, up 6% year-on-year; and EPS of $0.87, up 13% year-on-year. By brand, in 2026Q1, KFC achieved revenue of $2.453 billion, up 9% year-on-year; operating profit of $0.417 billion, up 8% year-on-year. Pizza Hut achieved revenue of $0.635 billion, up 7% year-on-year; operating profit of $0.071 billion, up 18% year-on-year. By channel, delivery revenue increased by 31%, maintaining a fast growth rate, with delivery revenue growth rates of 33% and 25% for KFC and Pizza Hut respectively. Company-wide delivery revenue accounts for 54%. Core brand same-store performance shows slight differentiation, with transaction volume maintaining growth resilience. In 2026Q1, overall same-store sales were flat year-on-year. By brand, KFC's same-store sales increased by 1%, maintaining positive growth for four consecutive quarters, with transaction volume/average transaction value increasing by 1%/-1% respectively. Pizza Hut's same-store sales decreased by 1%, but transaction volume recovered well with a 5% increase, achieving growth for 13 consecutive quarters, while average transaction value decreased by 5% due to the impact of high cost-effective product strategies. Management stated in the financial performance report for this quarter, "From the combined results of March and April, the current business performance overall meets expectations." - 636 stores were added in 2026Q1, a record high for a single quarter, and franchisee ratio continues to increase - At the end of the reporting period, the total number of company stores reached 18,737, with KFC and Pizza Hut having 13,454 and 4,375 stores respectively. In 2026Q1, the company added 636 stores, setting a record high, with KFC and Pizza Hut adding 457 and 207 stores respectively. The expansion of new store formats went smoothly, with significant results from the Pizza Hut WOW model, which has already entered over 100 new towns in the first quarter. By the end of the period, the proportion of franchised KFC and Pizza Hut stores increased to 15.9% and 10.1% respectively. - Rider costs drive up labor costs, and Pizza Hut restaurant profit margins improve significantly - In 2026Q1, the company's overall restaurant profit margin was 18.1%, down 0.4 percentage points year-on-year, mainly due to the continued increase in the proportion of delivery, rising labor costs dragging down profits, partially offset by optimization in rental cost ratio. During the reporting period, the proportion of employee salaries and benefits to restaurant income was approximately 26.7% and increased by 1.0 percentage point; the proportion of food and raw materials was 31.6% and increased by 0.4 percentage points; and the proportion of property rent and other operating expenses was approximately 23.5% and decreased by 1.0 percentage point. By brand, KFC's restaurant profit margin was 19.1% and decreased by 0.7 percentage points, while Pizza Hut's corresponding margin increased to 15.0% and 0.6 percentage points. Risk warning: Deterioration of consumption power, ineffective sinking effect, slower-than-expected brand incubation, intensified industry competition.