Goldman Sachs: Yum China (09987)'s new business progress is encouraging to raise the target price to HK$459

The Zhitong Finance App learned that Goldman Sachs released a research report saying that Yum China (09987) had solid results in the second quarter, and management reaffirmed its 2026 full-year goals (excluding Pizza Hut brand acquisitions) during the performance conference call, including 0% to 2% increase in same-store sales, medium to high single-digit growth in system sales, high single-digit growth in operating profit, double-digit profit growth per share, and slight improvements in restaurant margins and operating margins. Management expects positive growth in same-store sales and transaction volume in the third quarter. Goldman Sachs raised its 2026-2028 profit forecast by about 2.5% to reflect second-quarter results, updated foreign exchange assumptions, and improved profit ratio for the second half of the year. The target price was raised from HK$452 to HK$459, maintaining the “buy” rating.

In terms of new business developments, Goldman Sachs believes that the progress of new initiatives such as KCOFFEE, KPRO, Pizza Hut WOW, and PH Burger Bar is encouraging. The number of KCOFFEE stores has reached 3,300, and the management target is to double sales to 2 billion yuan year-on-year in 2026, reaching 5,000 by the end of the year; the number of KPRO stores has been raised to 800 by the end of the year (previously 600) and is expanding to low-tier cities; Pizza Hut WOW stores have more than 400 stores, helping the brand penetrate low-tier cities; PH Burger Bar has expanded to more than 200 locations in about six months, bringing double-digit sales growth and significant profit contributions to the parent company Pizza Hut stores. management The plan is to accelerate the expansion to 500 to 600 companies by the end of the year.

Yum China is expected to complete the acquisition of Pizza Hut's mainland brand equity in August. Management expects the 3% franchise fee savings to increase Pizza Hut restaurant's profit margin (after VAT) by about 2.8 percentage points and contribute about 60 basis points to the group's profit margin. The Group will use an offshore bridge loan equivalent to approximately US$1.2 billion (interest rate of about 2%) for financing. Management expects a slight increase in earnings per share in 2026 and a mid-single-digit increase from 2027 to 2028. Management raised Pizza Hut's 2027 and 2028 net store opening guidelines to more than 800 stores per year (previously over 600).