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  1. #1
    On the doghouse
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    Jun 2004
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    Default YumChina (NYSE:YUMC)

    YumChina is a company that possesses exclusive rights to operate the KFC, Pizza Hut and Taco Bell concepts in in the People's Republic of China (excluding Hong Kong, Taiwan and Macau.) Balance date is 31st December. At that date on 31st December 2018 YumChina operated 7,983 restaurants. This makes it by far the largest operator of chain restaurants in China, with the majority of those outlets being KFC. As I write there are only three Taco Bell restaurants in the whole of China, all in Shanghai. Taco Bell is currently a concept in development in China. Decisions on when or whether to roll it out further are yet to be made.

    Some may be surprised to learn that the largest restaurant chain 'brand' in China is KFC, and not a Chinese home grown brand. Chinese home grown fast food brands have been relatively unsuccessful because Chinese food by its nature is already fast and convenient. The exotic nature of the American brands has made them more desirable. Reversing the situation in the United States, McDonalds is very much in second place in China with 2500 outlets open by August 2017. Possibly helping KFC is that they have adapted their menus to Chinese tastes. The chain boasts a full Chinese breakfast menu alongside fish and shrimp burgers, vegetable soups and full-plate meals with vegetable sides. Contrast this to McDonalds who have stringently stuck to their American food concepts. Dominos Pizza has only a very small presence in China for possibly the same reason. A further advantage card the American concepts can play is that their standards of restaurant and toilet cleanliness is generally higher than the Chinese competition.

    YUMC is listed on the NYSE. Yet the annual meetings so far have been held in Hong Kong. Although the reporting currency for the company is USD, the functional currency in which business is transacted in China is the Chinese Renminbi ("RMB"). Unusually for an Asian corporate, the company Chief Executive is a relatively young woman, Joey Wat, aged 46 at last balance date. The goal of the company is to triple the number of restaurants they operate in China over the next 20-30 years. They are currently opening on average more than two new restaurants for every day of the year.

    YUMC was spun off from the parent YUM Corporation in October 2016. So it doesn't have a long history as a listed entity, even though they opened their first restaurant (a KFC) in China as long ago as 1987.

    Why should an investor in NZ be interested in YUMC? It is an example of a comparable company to the likes of Restaurant Brands, who also license most of their restaurant developments from the concept owning YUM parent. With a partial takeover offer in the market for RBD as I write, a look at YUMC gives us an independent reference point for valuing this kind of business.

    Some analysis of YUMC will be forthcoming.

    SNOOPY

    discl: hold YUMC
    Last edited by Snoopy; 11-01-2019 at 08:29 PM.
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