4Q23 sales trend beat with quarterly DPS raised 23% to US$0.16/sh
Yum China (9987.HK) 4Q23 sales trend beat with quarterly DPS raised 23% to US$0.16/sh
- 4Q23 sales above market expectation, up 19% yoy. System sales growth of 21% yoy was driven by 12% net unit contribution, 4% sssg, and lapping of temporary closures from prior year pandemic
- 1Q24 will likely see some pressure due to high base in 1Q23 from pent up demand from 2022.
- Our last rating is a BUY with TP at HK$417. Despite intense competition and concerns on ASP pressure, Yum China’s business model stands more resilient to withstand cyclical pressures.
Yum China (9987.HK) 4Q23 results came in ahead of market expectations. 4Q23 system sales rose 21% y-o-y, driven by 12% net unit contribution, 4% sssg, and lapping temporary closures from prior year pandemic. The Company recorded a net opening of 542 new stores, with total store count at 14,644 (KFC: 10,296; Pizza Hut: 3,312). 4Q23 revenue rose 19% yoy to US$2.49bn (currency neutral growth: +21%), driven by SSSG (KFC: +3%; Pizza: +6%), where rising store traffic was the key driver. Operating profit rose 170% yoy to US$110m. Core operating profit, excluding currency impact and one-off items, surged 324% yoy. Restaurant margin expanded to 10.7%. Diluted EPS rose 77% to US$0.24/sh. For the full-year, system sales rose 21%, driven by 9% net new unit contribution, 7% sssg, and lapping of temporary closures. 2023 revenue rose 15% yoy to US$10.98bn (currency neutral growth +21%). Store count rose 13%, or 1,697 net new stores, exceeding its earlier net new store target. Restaurant margin improved to 16.3%. Diluted EPS increased by 89% yoy to US$1.97/sh. Total membership of KFC and Pizza Hut rose 14% yoy to 470m member, where they accounted for 65% of KFC & Pizza Hut aggregate sales. In terms of shareholder return, Yum China had conducted 7.5m shares, or US$336m worth, of repurchases in 4Q23. For the full 2023, the company repurchased 12.4m shares, accounting for 3% of outstanding. The Company plans to raise its existing cash dividend by 23% to US$0.16/sh (Previously: US$0.13), with plans to repurchase US$1.25bn of common stock.
Looking into 2024, the Company expects core OP margin to stay stable at ~10.2% as same store sales normalise, while cost control remains in place. 1Q24 will likely see some pressure due to high base in 1Q23 from pent up demand spillover from 2022. The Company had introduced value choices at sub-Rmb20, as well as introduction of Chinese burgers, chicken breast burgers, with anticipated stronger marketing campaigns in upcoming CNY. The Company continues to see good opportunity in lower tier cities, with more availability to expand its footprint, as well as towards its other brands. While ticket price downtrend remains a concern due to competition, the Company remains competitive through value choice introductions, and maintaining its average prices (KFC ~ Rmb39; Pizza Hut ~Rmb90). The Company plans to open 1,500-1,700 net new stores with capex of US$700-850m. For the medium term, the Company aims to reach 20,000 stores by 2026, achieve high-single to double digit CAGR in system sales and operating profit, and double digit CAGR in EPS (using 2023 as base year) excluding forex impact. The Company is also committed to returning a minimum of US$3bn to shareholders through dividends and share repurchases. Our last rating stood a BUY, TP at HK$417.