Guosheng Securities has released a research report maintaining its "Buy" rating on YUM CHINA (09987). The firm forecasts the company's revenue for 2026-2028 to be $12.76 billion, $13.72 billion, and $14.81 billion, respectively, with net profit attributable to shareholders projected at $1.029 billion, $1.119 billion, and $1.195 billion. The current stock price implies forward price-to-earnings (P/E) ratios of 14.4x, 13.3x, and 12.4x for those years. As a leader in the restaurant industry, the company is simultaneously pursuing store expansion, product innovation, store upgrades, brand building, digital empowerment, and shareholder returns. The acquisition of ownership of Pizza Hut China is expected to further enhance company profits and accelerate brand growth. The main points from Guosheng Securities are as follows:
Transaction Overview
The company plans to acquire the ownership of the Pizza Hut brand in mainland China from Yum! Brands for $1.2 billion in cash. Following this transaction, the company will no longer be required to pay the previously owed franchise fees to Yum! Brands. The acquisition funds are intended to be raised through a combination of cash and debt financing. As the highest applicable percentage ratio exceeds 5% but is below 25%, the transaction only requires disclosure. The deal is expected to close in the third quarter of 2026.
Valuation Assessment
The valuation for this transaction primarily references the P/E valuation method, using seven comparable companies including Yum! Brands, McDonald's, Domino's, and Starbucks. Based on the franchise fees payable by Pizza Hut China to Yum! Brands for the twelve months ended March 31, 2026, and assuming an applicable tax rate of 16.5%, the transaction price of $1.2 billion equates to a P/E multiple of 19.5x. This represents a 17% discount to the median latest trailing-twelve-month (TTM) P/E multiple of 23.5x for the comparable companies as of the market close on June 12, 2026, indicating the overall transaction valuation is relatively reasonable.
Financial Impact
Financially, the acquisition is expected to contribute mid-single-digit percentage growth to earnings. Currently, the company must pay Yum! Brands a franchise fee equivalent to 3% of the net system sales of the franchised brands, amounting to $327 million and $344 million in 2024 and 2025, respectively. Within these figures, the franchise fee for the Pizza Hut business was RMB 478 million and RMB 494 million. Upon completion of the transaction, the company will no longer need to pay franchise fees for Pizza Hut China to Yum! Brands. Based on the 2025 Pizza Hut business franchise fee and the company's overall operating profit, it is estimated that the transaction could contribute mid-single-digit percentage earnings growth on a full-year basis post-completion. Furthermore, as the transaction will be funded via cash and debt financing, it is not expected to impact the shareholder return plan.
Operational Benefits
On the operational front, greater strategic flexibility is anticipated to drive accelerated brand growth. In Q1 2026, Pizza Hut China achieved its 13th consecutive quarter of same-store transaction growth, alongside its 8th consecutive quarter of improvement in restaurant margin and operating profit. Previously, at the November 2025 Investor Day, the company indicated plans to increase the number of Pizza Hut stores to over 6,000 by 2028 and to double its operating profit by 2029 compared to 2024 levels. Following this acquisition, the company will become the owner of the Pizza Hut brand in mainland China. This enhanced strategic flexibility is expected to drive continuous innovation in menus, store formats, new modules, and operational management. The elimination of franchise fee payments is also projected to further improve single-store profitability and lower the barriers to opening new stores.
Risk Factors
Key risks include slower-than-expected store expansion, weaker-than-anticipated same-store sales, and potential food safety issues.
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