I own shares in YUM as well. No reason why you can't ride more than one horse. In fact that is how I got my shares in YUMC. The shares split from my YUM holding.
YUMC has no term debt, which is another appealing factor.
SNOOPY
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The functional currency of YUMC is the RMB, not the USD. So what happens if the revenue is converted to RMB?
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 Adjusted Normalised NPAT {A} $284m $254m $372m $474m $591m $634m Revenue {B} $6,905m $6,934m $6.909m $6,752m $7,144m $7,774m RMB/USD Exchange Rate 6.1932 6.1428 6.2284 6.6423 6.7518 6.6174 Revenue RMB42.764 RMB42.594 RMB43.032 RMB44.849 RMB48.235 RMB51.444 Net Profit Margin {A}/{B} 4.11% 3.66% 5.38% 7.02% 8.27% 8.16%
The revenue growth rate in local currency per annum was:
RMB42.764 x (1+g)^5 = RMB51.444 => g=3.77% (compounding)
This is not great when you consider:
1/ local inflation is around 2%
2/ there has been a substantial number of new outlets created over the study period.
But it does show that the revenue is growing above inflation, albeit modestly. This was not apparent when the results were presented in USD.
SNOOPY
I have mentioned before that YUMC came into being as a 'stock split' for the parent YUM corporation. This is a slight simplification of the truth. In fact at the time of the split, YUMC received an outside capital injection of $460m (AR2018 p115). This is as the result of two strategic investors being brought on board the share register:
1/ An affiliate of the 'Primavera Financial Group' called 'Pollis Investment L.P.' invested $410m.
2/ An affiliate of ''Zhejiang Ant Small and Micro Financial Services Co. Limited" called 'API Hong Kong Investment Limited" invested $50m.
The net effect of these transactions was to add 19.145m shares (along with the $460m) to the 363.758m shares that came into existence at the time of separation. These shares were added in the very last quarter of 2016 and so already appear on the FY2016 balance sheet information as presented in the table below.
EOFY2016 Change EOFY2018 Normalised Earnings {A} $472m $634m No. of Shares {B} 383m 392m eps {A}/{B} $1.23c +39c {D} $1.62 Owner Equity {C} $2,443m $2,976m Owner Equity per share {C}/{B} $6.38 +$1.21 {E} $7.59 Return on Incremental Equity / Share {D}/{E} +32%
It is likely that the net effect of this earlier $460m investment was not felt immediately. So much of the profitability gain apparent from subsequent net capital injection into YUMC (mainly from senior employees cashing in their stock options) is 'piggy backing' on the earlier $460m cash injection not shown in the above table. Thus in my opinion a more meaningful comparison table is this second one:
31/10/2016 (spin off date) Change EOFY2018 Normalised Earnings {A} $472m (for all of FY2016) $634m No. of Shares {B} 364m 392m eps {A}/{B} $1.30c +32c {D} $1.62 Owner Equity {C} ($2,443m-$460m) $2,976m Owner Equity per share {C}/{B} $5.45 +$2.14 {E} $7.59 Return on Incremental Equity / Share {D}/{E} +15%
Note that 15% is well below the overall ROE figure of 21.3% achieved over FY2018 and also below the ROE figure of 18.5% over the last five years. 15% return on 'incremental equity' is nevertheless a good figure, the kind of figure that a Warren Buffett would be happy with.
SNOOPY
Cricketfan, YUMC fell 3.49% on Friday down to $42.57. That is more than any of the underlying US indices fell and all were down. This stoush between Trump and Chinese President Xi is exactly the kind of event that we investors look for to bring share prices down to more reasonable levels.
Many here will see YUMC as just another US corporation liable to feel the backlash, if not from tariffs, then from an anti-US feeling from the loyal Chinese citizen consumers against the USA. But as you can see below, it isn't.
Watch the misguided masses sell this one down. Then be ready to pounce. But will the share price go low enough to make this a deal that new investor's can't turn down? That remains to be seen.
SNOOPY
It is interesting to take note of the year to date profitability for HY2019 verses the previous year HY2018. (From 30th July 2019 Yum China Profit Release)
A significant contributor to the profit in HY2019 was the 'mark to market' gain from YUMC's equity investment in Meituan Dianping (a $27m gain in the half).
Meituan and Dianping were originally two separate companies that merged in 2015. They made their merged public debut on the Hong Kong stock exchange (HKEX) in September 2018. Meituan Dianping operates two complimentary website businesses in China. Meituan.com is a group-discount website which sells vouchers from merchants for deals. Meituan.com generates most of its revenue from mobile application services. Dianping.com hosts consumer reviews of restaurants, and also offers group buying.
Adjusted 'Net Profit after Tax' for YUMC attributable to shareholders is as follows:
HY2019 Revenue: $1,048m
HY2019 NPAT: $553m - $139m -$27m -$14m = $373m
HY2019 eps: $373m/ 394m = 94.7c
Exchange Rate 31-07-2019: USD1 = 6.885yuan
HY2018 Revenue: $1,092m
HY2018 NPAT: $606m - $160m - $15m = $431m
HY2018 eps: $431m/ 377m = $1.14
Exchange Rate 31-07-2018: USD1 = 6.813yuan
Against the underlying growth narrative, core earnings are down. That is still the case, even if we add in the Meituan Dianping shareholding gain.
$27m/ 394m = an incremental 6.9c for HY2019.
We know that extra $27m of investment capital gain was not planned for, because YUMC management do not go about guessing the short term performance, as reflected by markets, of their long term investments. So this earnings drop is not consistent with the stated plan of growing earnings over FY2019 as referenced below.
From
https://www.fool.com/investing/2019/...high-note.aspx
"Management still thinks it can grow overall sales in high single digits and operating profits by double digits."
One thing management cannot control is the relationship between the US Dollar (the reporting currency for YUMC) and the Chinese Yuan (the function currency of YUMC). Yet if we translate the revenue figures into yuan:
HY2019 Revenue: 7,215m yuan
HY2018 Revenue: 7,340m yuan
there is still no growth.
At EOFY2018, YUMC was looking to open 600-650 new restaurants in the FY2019 financial year.
At EOHY2019 this target has been upped to 800-850 units, with the majority of the incremental new units coming from KFC and the new inclusion of COFFii & JOY.
Special opening promotions for new stores can affect profits in the short term. In addition, bringing forward store remodelling can have a profound negative effect on operating profit and sales, during the period of refurbishment.
During FY2018 and into FY2019 the overall Chinese economy slowed. Yet digital ordering and increased delivery options are key areas of focus to cater to the busy Chinese diner. Digital and delivery initiatives have helped keep costs in check over the year.
Snoopy..
How's that CoronaVirus doing to YumChina? It's ok i'll post the new for you:
https://edition.cnn.com/2020/02/05/b...rus/index.html
"Yum China, which operates KFC, Taco Bell and Pizza Hut in the country, warned that the deadly coronavirus will hurt its business this year. "As a result of the outbreak, the company may experience operating losses for the first quarter of 2020," the company said in a statement discussing 2019 financial results."
Are you buying more?
Share price closed at $42.71 down over a dollar almost exactly line ball with a year ago! Not great news but hardly a collapse. Google is showing a PE of 23. I have a decent helping of these so not going out of my way to buy more. However, after problems trying to cash my US dividend cheques in NZ I have joined the YUMC Dividend Reinvestment Plan. So the answer to your question is 'yes' as a result of that. I am not buying in a significant way though.
SNOOPY
With my Australian shares I go for drp where avaliable.Cheques go into my Craigs Australian cash management a/c.I do have a lot of problems with the companies that no longer issue cheques.Usually takes 3 or 4 emails and often a phone call before they get the right numbers for my NZ bank a/c.Takes about a month.Those companies I am selling out of, because I can't be bothered with the hassles.
With my recent UK investment I have the shares in Craigs' Custodial a/c to save problems.
From the Forager funds International shares fund January report.
"Unsurprisingly the quarantine measures are hurting our investment in Yum China (NYSE:YUMC), the owner of KFC and Pizza Hut stores in China. More than 30% of their restaurants have been temporarily closed. For those open, sales per store have halved versus the prior comparable period. It’s a painful and substantial test of the business and management, at the very least temporarily. Having first opened in China in 1987, Yum China has built scale and processes that have been able to absorb shocks. The SARS outbreak in 2003 is a case in point. Revenues have grown ten-fold since. There have been food safety incidents that forced a rejigging of supply chain processes. More recently, the company has navigated through the rapid spike in food cost caused by the African Swine Flu. But this is clearly the biggest test yet. Prior to the emergence of the virus, the recent fourth quarter result was strong, beating market expectations for the ninth consecutive quarter. The company has executed well on factors within its control—growing its store network, improving its digital strategy and launching several new menu offerings. In a year where food costs were rising, the company still managed to expand margins. The balance sheet is strong, with more than US$1.6bn in cash and no debt. Few competitors have such meaningful ‘rainy day’ reserves. This should see Yum China through the current challenges. "
Any idea why this hasn't dropped much?
This is a surprise to me as well Arthur. I don't know the answer, but I can offer the following observations:
1/ YUMC is very will capitalised (no term debt), so is well placed to ride out any short term downturn. The strength of the underlying business model has not changed.
2/ YUMC is fundamentally a domestic company with most food ingredients grown and supplied from within China. So there is unlikely to be any shortage of product for sale from international trade restrictions.
3/ People still have to eat and one of YUMC's very strong points of difference is food hygiene standards. By that I mean they have a standard (not that it is necessarily world class by western standards) whereas most local food restaurant businesses have no quality control standard at all. This means local people may be more inclined to eat at a YUMC restaurant than 'Chin's Diner'.
SNOOPY
It was good to hear YUMC CEO Joey Wat, on the RNZ airwaves this morning. She said that every YUMC customer was given a ticket with the name and temperature of the person who served them on it. When the order was delivered, a similar ticket was added for the delivery person. This provides confidence and traceability for their customers.
More information on what YUMC are doing with their COVID-19 risk control program can be found here.
http://ir.yumchina.com/news-releases...ht-coronavirus
"Since January 30th, the KFC and Pizza Hut brands in China have rolled out contactless delivery services nationwide and contactless in store pick-up services at selected locations in China. These services help reduce the risk of person-to-person transmission of the coronavirus and have been well received by customers."
An unlikely growth opportunity has opened up in the area of corporate meals
"helping employers to offer healthy and reliable dining options to their staff."
YUMC have been helping health workers too.
"Since January 27, the KFC and Pizza Hut brands have been providing up to 1,500 free meals every day to medical workers in hospitals across Wuhan. The initiative has since been expanded, resulting in the delivery of over 70,000 free meals to nearly 500 hospitals and community health centres across mainland China."
Then there is a picture of a full body suited medical worker carrying in three buckets of healthy KFC into the hospital - classic!
SNOOPY
Investors are diving into consumer staples now.