HAITONG INT'L: Lowers YUM CHINA (09987) target price to HKD 379.6, maintains "Outperform" rating.

HAITONG INT'L released a research report lowering YUM CHINA's (09987) 2027 P/E from 18.5x to 15x, cutting the target price from HKD 430.3 to HKD 379.6, while maintaining an "Outperform" rating. The bank expects the company's same-store sales to come under pressure in Q3, mainly due to weather disruptions and weak consumption, but the share price has already reflected recent operating pressure. The bank expects the company's Q3 total revenue at approximately USD 3.46 billion, up 8% year-on-year, or about 2.3% growth excluding FX effects, with same-store sales turning to a 1% decline, mainly due to the high base from last year's delivery subsidies, compounded by the summer calendar mismatch and weather impacts such as the August typhoon in East China; the company has since added promotions to hedge. Q4 is expected to return to slight growth as the base normalizes, with full-year same-store sales still within the 0-2% guidance range. The report noted that YUM CHINA still faces certain margin headwinds in Q3, with continued pressure from raw materials, promotions, and rider costs, though rent and other expenses may offset part of the impact. Q3 food and packaging cost ratio is estimated at about 31.7%, up 0.2 percentage points quarter-on-quarter; restaurant margin at about 16.1%, roughly flat versus Q2; operating margin at about 11.4%. The company completed the acquisition of ownership of the Pizza Hut mainland China brand for approximately USD 1.2 billion on August 7, 2026, terminating the annual royalty fee of about RMB 500 million, which management estimates corresponds to a margin improvement of about 2.8 percentage points and immediately accretes to 2026 earnings per share. The bank estimates the company's revenue for 2026 to 2028 at USD 12.99 billion, USD 13.75 billion, and USD 14.60 billion respectively, with net profit at USD 974 million, USD 1.057 billion, and USD 1.156 billion respectively, up 4.9%, 8.5%, and 9.3% year-on-year.