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Yum China Holdings Inc YUMC

Morningstar Rating
$41.76 +0.16 (0.38%)
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Company Report

Yum China Earnings: Finished 2023 on a High Note; We See Upside to 2024 Guidance

Wide-moat Yum China's fourth-quarter earnings were largely in line with our expectations but came in above the Refinitiv consensus estimate. Management’s 2024 outlook aligns with its three-year goals for 2024-26, yet we anticipate the company outperforming its own projections. Overall, we maintain our USD 80 fair value estimate and continue to view shares as undervalued. We believe the current market valuation overlooks two things: 1) Yum China's opportunities for restaurant expansion in China's growing fast-food industry; and 2) margin improvement that will be realized by operating leverage and ongoing digital investments.

Price vs Fair Value

YUMC is trading at a 48% discount.
Price
$41.76
Fair Value
$21.00
Uncertainty
Medium
1-Star Price
$865.00
5-Star Price
$51.00
Economic Moat
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Capital Allocation
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Bulls Say, Bears Say

Bulls

Average unit volume (USD 1.3 million pre-COVID-19), pretax cash payback periods (between 2-3 years), and cash-on-cash returns (roughly 20%) for new KFC China units exceed the economics of most chains in the region.

Bears

Although the zero-COVID-19 policy is officially over, restaurants still contend with cautious consumer spending.

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News

Trading Information

Previous Close Price
$41.60
Day Range
$41.0642.29
52-Week Range
$33.5564.70
Bid/Ask
$40.51 / $42.30
Market Cap
$16.78 Bil
Volume/Avg
2.9 Mil / 3.5 Mil

Key Statistics

Price/Earnings (Normalized)
21.43
Price/Sales
1.54
Dividend Yield (Trailing)
1.25%
Dividend Yield (Forward)
1.53%
Total Yield
4.90%

Company Profile

With almost 13,000 units and USD 10 billion in systemwide sales in 2022, Yum China is the largest restaurant chain in China. It generates revenue through its own restaurants and franchise fees. Key concepts include KFC (9,094 units) and Pizza Hut (2,903), but the company's portfolio also includes other brands such as Little Sheep, East Dawning, Taco Bell, Huang Ji Huang, COFFii & Joy, and Lavazza (collectively representing about 950 units). Yum China is a trademark licensee of Yum Brands, paying 3% of total systemwide sales to the company it separated from in October 2016.
Sector
Consumer Cyclical
Industry
Restaurants
Stock Style Box
Large Core
Total Number of Employees
406,000

Competitors

Valuation

Metric
YUMC
YUM
MCD
Price/Earnings (Normalized)
21.4325.7824.89
Price/Book Value
2.57
Price/Sales
1.545.408.28
Price/Cash Flow
9.2622.5521.71
Price/Earnings
YUMC
YUM
MCD

Financial Strength

Metric
YUMC
YUM
MCD
Quick Ratio
1.360.991.03
Current Ratio
1.591.261.16
Interest Coverage
4.548.60
Quick Ratio
YUMC
YUM
MCD

Profitability

Metric
YUMC
YUM
MCD
Return on Assets (Normalized)
6.68%24.79%16.74%
Return on Equity (Normalized)
12.10%
Return on Invested Capital (Normalized)
7.06%55.35%21.67%
Return on Assets
YUMC
YUM
MCD
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Name
Morningstar Rating for Stocks
Economic Moat
Market Cap
MCD
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CMG
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CMPGY
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YUM
Yum Brands IncQrdmx$38.6 Bil
QSR
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DRI
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DPZ
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WING
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