Guosen Securities has released a research report maintaining its "Outperform" rating on YUM CHINA (09987). The report is based on the company's stable same-store sales in 2026Q1 and the steady progress of its store expansion plan. Guosen Securities maintains its net profit attributable to parent company forecasts for YUM CHINA for 2026-2028 at $1.019 billion, $1.106 billion, and $1.170 billion, corresponding to P/E ratios of approximately 16.5x, 14.4x, and 13.1x, respectively.
Amid the prevailing trend of value-for-money consumption, the company has effectively implemented proactive adjustments to its product mix and pricing strategies, leveraging its cost management capabilities. This has consistently driven growth in same-store transaction volume, highlighting the resilience of its operations. Furthermore, the company is steadily advancing its target of returning a total of $1.5 billion to shareholders in 2026, a scale representing about 9% of its latest market capitalization.
Key points from Guosen Securities are as follows:
**2026Q1 Operating Profit Increased 12% Year-over-Year** In 2026Q1, the company achieved revenue of $3.271 billion, a year-over-year increase of 10%. Operating profit was $447 million, up 12% year-over-year. Net profit attributable to the parent company was $309 million, a 6% increase year-over-year. Earnings per share (EPS) were $0.87, up 13% year-over-year.
By brand, in 2026Q1, the KFC division achieved revenue of $2.453 billion, a 9% year-over-year increase, with an operating profit of $417 million, up 8% year-over-year. The Pizza Hut division achieved revenue of $635 million, a 7% year-over-year increase, with an operating profit of $71 million, up 18% year-over-year.
By channel, delivery revenue grew 31% year-over-year, maintaining a rapid growth rate. Within this, KFC and Pizza Hut division delivery revenue grew by 33% and 25%, respectively. Delivery revenue now accounts for 54% of the company's total revenue.
**Core Brands Show Slight Divergence in Same-Store Performance, Transaction Volume Maintains Growth Resilience** The company's overall same-store sales were flat year-over-year in 2026Q1. By brand, KFC's same-store sales grew 1% year-over-year, marking the fourth consecutive quarter of positive growth, with transaction volume/average ticket size growing 1% and declining 1%, respectively. Pizza Hut's same-store sales declined 1% year-over-year, but transaction volume recovered well, increasing 5% year-over-year, marking the 13th consecutive quarter of growth. The average ticket size was impacted by the value-for-money product strategy, declining 5% year-over-year.
Management stated in the quarterly financial results report that, "Looking at March and April combined, the current operating performance is generally in line with expectations."
**2026Q1 Net Store Additions Reach 636, a Record High for a Single Quarter; Franchise Proportion Continues to Rise** As of the end of the reporting period, the company's total store count reached 18,737, with KFC and Pizza Hut at 13,454 and 4,375 stores, respectively. In 2026Q1, the company achieved a net increase of 636 stores, a historical high for a single quarter. KFC and Pizza Hut net additions were 457 and 207 stores, respectively. New store format expansion is progressing smoothly, with Pizza Hut's WOW model showing significant results, having entered over 100 new towns in the first quarter. By the end of the period, the proportion of franchised stores for KFC and Pizza Hut had increased to 15.9% and 10.1%, respectively.
**Rider Costs Drive Up Labor Expenses; Pizza Hut Restaurant Margin Improves Notably** In 2026Q1, the company's overall restaurant margin was 18.1%, a year-over-year decrease of 0.4 percentage points. Analysis suggests this was primarily dragged down by the continued increase in the proportion of delivery and rising labor costs, partially offset by the optimization of rent cost as a percentage. During the reporting period, salaries and employee benefits accounted for approximately 26.7% of restaurant revenue, an increase of 1.0 percentage point year-over-year. Food and paper accounted for 31.6%, up 0.4 percentage points year-over-year. Occupancy and other operating expenses accounted for approximately 23.5%, down 1.0 percentage point year-over-year.
By brand, KFC's restaurant margin was 19.1%, down 0.7 percentage points year-over-year, while Pizza Hut's corresponding margin improved to 15.0%, up 0.6 percentage points year-over-year.
**Risk Warnings:** Weakening consumer spending power; suboptimal performance in lower-tier markets; slower-than-expected brand incubation; intensifying industry competition.
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