【行业研究报告】百胜中国-S-Constructive efforts but still under pressure

1Q22resultwasamiss,butwestillhavetogivecreditstoitseffortsand
outperformance.However,duetouncertainCOVIDsituationin2Q22Eandcosts
pressureahead,wetendtobecautiousatthemoment.HencewemaintainHOLD
andcutTPtoHK$287.57,basedon25xFY22EP/E,vs5yearsaverageof26x.
1Q21resultmissed,mostlyonthecostsside.For1Q21,salesgrewby4%
YoYtoUS$2.67bn,inlinewithBBGest.,whilenetprofitfellby57%YoYto
YoYtoUS$2.67bn,inlinewithBBGest.,whilenetprofitfellby57%YoYto
US$100mn,missedBBGest.by23%.Despitethepandemic,itsSSSonlyfell
by8%,farbetterthanStarbucksChina’s23%andwethinkthemisswas
mostlyduetoweaker-than-expectedmargins,given1)morepromotionsto
drawtraffic,2)greatercommodityinflation,3)higher-than-expecteddeliverycosts
(incl.riderandfuelcosts)and4)operatingdeleverage(esp.onwagesandrental
expenses).KFC/PizzaHut’srestaurantlevelmarginwasweakat15%/11%,far
belowpre-COVIDlevelof20%/13%,butbetterthan13%/0%in1Q20.
Excellenteffortssofar,but2Q22Eoutlookisstillhighlydependenton
COVID-19situation.YUMCwasveryagileandimplementedmanynew
initiatives,suchas:1)keeping10-15%storesopenandgenerating40-50%of
pre-lockdownsalesinShanghai,thruasimplifiedmenuanddelivery;2)
launchingcommunitypurchasesandnewretail,sellingready-to-eat/heat/cook
packedfood(madeup1-2%ofsalesinFY21andgrewby~100%in1Q22).We
believetheseeffortswillbecomeanimportantdrivingforcewhenthemarket
recovers.However,wearestillcautiousabout2Q22E,because1)SSSGinApr
fellbymorethan20%(3,000storeswereaffected,vs1,200inMar),2)many
citiesarestillbeingaffected,likeBeijing(dine-inwassuspendedduring5-1
holidays),Guangzhou,Shenzhen,SuzhouandTianjin,etc.and3)businessin
transportationhubsarestillfarbelowwater.Managementalsohighlighted,ifthe
outbreakpersists,2Q22Ecouldbeloss-making.Moreover,costspressure
andoperatingdeleveragecouldlingerinFY22E.
FY22Enewstoreopeningtargetmaintainedandabiggergameplanfor
TacoBell.DespitesomedelaysinMarandApr2022,YUMCisstillgoingto
open1,000-1,200netstoresinFY22E(andtospendUS$800mnto1bn
capex),asthepaybackperiodforKFC/PizzaHutareveryhealthyat2/3
years.However,thenumberofstoresbeingrevampedcouldbereducedin
FY22E.AftersigninganewandmilestoneMasterLicenseAgreementwith
YUM!Brand,TacoBellwillspeedupitsexpansionandopen100storesin
FY22Eandatleast225storesbyFY25E.
MaintainHOLDandcutTPtoHK$287.57,basedonanunchanged25x
FY22EP/E.WereviseddownFY22E/23E/24Enetprofitby16%/5%/5%,to
factorin1)lowerSSSGand2)greatercostspressure.YUMCistradingat29x
FY22EP/E,nottooattractiveinourview,given7%EBITCAGRinFY21-24E.