Fosun: The acquisition of the Pizza Hut brand ownership in Mainland China by YUM CHINA(09987) has positive strategic significance.

Furui released a research report stating that Yum China (09987) announced its acquisition of the trademark ownership of Pizza Hut in Mainland China for $1.2 billion. The bank believes that this transaction is strategically positive, with a reasonable valuation, and expects that over time, the company will be able to prudently introduce leverage to optimize the balance sheet, thereby increasing shareholder return on equity. After the transaction is completed, Pizza Hut in Mainland China will no longer have to pay franchise fees to Yum! Brands. The bank reiterates its "buy" rating for Yum China, with a Hong Kong stock price target of 505.5 Hong Kong dollars unchanged. The bank points out that, on a comparable basis, Yum China's full-year financial guidance for 2026 remains unchanged. The transaction is expected to be completed in the third quarter of 2026, and it is expected that after the completion of the transaction, it will immediately have a dilutive effect on earnings per share for 2026, with the dilutive effect on earnings per share in 2027 and 2028 expected to be in the low double digits. In addition, due to the improvement in the profit margin of Pizza Hut in Mainland China, Yum China's overall restaurant profit margin and operating profit margin will also expand. Furui stated that Yum China plans to finance this acquisition through a combination of cash and debt financing. The company remains committed to its previously announced capital return plan, including returning $1.5 billion to shareholders in 2026, and returning approximately 100% of free cash flow (excluding minority shareholder dividends) to shareholders annually. The bank estimates that the amount of return in 2027 and 2028 will be around $900 million to $1 billion.