Analyst Note| Ivan Su |
Yum China's 2021 investor day offered a number of new long-term financial targets, which all reinforce our wide moat rating and positive long-term bias. We continue to view Yum China as a safe way to gain exposure to the growth of the Chinese middle class over the next decade, presenting a compelling combination of free cash growth and capital allocation while avoiding regulatory risks tied to Chinese Internet names. We're raising our fair value estimate to USD 86 from USD 84 after the event to account for more rapid unit opening trends (implied by higher expansion capital expenditure guidance) and specialty coffee opportunities. While earnings trends could still be uneven over the near term due to COVID-19 lockdowns, we still see the stock as a solid long-term play, trading at 37% discount to our fair value estimate.