Soochow Securities has issued a research report maintaining a "Buy" rating on Yum China (09987). The report highlights the company's robust operational fundamentals and attractive dividend yield. Analyst forecasts for attributable net profit for 2026-2027 have been adjusted to $1.043 billion and $1.144 billion, respectively, up from previous estimates of $989 million and $1.059 billion. A new forecast for 2028 projects a profit of $1.263 billion, representing year-on-year growth rates of 12.24%, 9.69%, and 10.41% for the respective years. This corresponds to current price-to-earnings ratios of 19.31x, 17.61x, and 15.94x.
Key points from the report are as follows:
Yum China released its 2025 Q4 and full-year results. Full-year 2025 system-wide sales and total revenue both increased by 4% year-on-year. In the fourth quarter of 2025, system-wide sales and total revenue grew by 7% and 9% year-on-year, respectively, with Q4 revenue exceeding the firm's prior expectations. Breaking this down by brand: KFC's full-year 2025 system-wide sales and total revenue increased by 5% and 4% year-on-year, respectively, while Q4 figures rose by 8% and 9%. Pizza Hut's full-year 2025 system-wide sales and total revenue grew by 4% and 3% year-on-year, with Q4 increases of 6% for both metrics.
Full-year and Q4 2025 adjusted net profit increased by 2% and 24% year-on-year, respectively. The strong Q4 profit performance, which surpassed expectations, is attributed to factors including automation systems, lean operations, and optimized raw material costs. Improved restaurant-level margins, up 0.6 and 0.7 percentage points year-on-year to 16.3% and 13% for the full year and Q4 respectively, benefited from better management of food and packaging costs, property rents, and other operating expenses. Specifically, KFC's full-year and Q4 2025 operating profit grew by 8% and 16% year-on-year, with restaurant-level margins increasing by 0.5 and 0.7 percentage points to 17.4% and 14.0%. Pizza Hut's full-year and Q4 operating profit surged by 19% and 52% year-on-year, with restaurant-level margins rising by 0.8 and 0.6 percentage points to 12.8% and 9.9%.
The total number of restaurants reached 18,100 by the end of 2025, with a net addition of 1,706 stores for the full year and 587 in Q4. KFC and Pizza Hut ended the year with 13,000 and 4,200 stores, respectively, having net additions of 1,349 (including 504 franchised stores) and 444 (including 139 franchised stores) for the year.
Same-store sales showed significant improvement. Full-year and Q4 2025 overall same-store sales increased by 1% and 3% year-on-year. For the full year, KFC and Pizza Hut both reported 1% growth in same-store sales. The company achieved positive year-on-year growth in overall same-store sales and same-store customer traffic for three consecutive quarters and twelve consecutive quarters, respectively. In Q4, KFC's same-store sales, customer traffic, and average spend per customer changed by +3%, +3%, and were flat, respectively. Pizza Hut's Q4 metrics changed by +1%, +13%, and -11%, potentially due to the company offering more value-oriented products.
The outlook for 2026 is positive. The company targets a total store count exceeding 20,000, implying net new store openings of over 1,900, with a long-term goal of over 30,000 stores by 2030. Franchised stores are expected to comprise 40-50% of new openings for both KFC and Pizza Hut. Capital expenditure is projected to be between $600 million and $700 million. In 2025, the company returned $1.5 billion to shareholders through a combination of cash dividends and share repurchases, representing a dividend yield of nearly 8%.
The report concludes with risk warnings, including potential fluctuations in raw material prices, food safety risks, and intensifying industry competition.
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