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  1. #71
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    Default Local Revenue Trend (FY2020 Perspective)

    Quote Originally Posted by Snoopy View Post

    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.
    The functional currency of YUMC is the RMB, not the USD. So what happens if the revenue is converted to RMB?

    FY2015 FY2016 FY2017 FY2018 FY2019
    Adjusted Normalised NPAT (USD) {A} $369m $472m $589m $633m $687m
    Revenue (USD) {B} $7,233m $7,075m $7,769m $8,415m $8,776m
    RMB/USD Exchange Rate (Yearly Average) (1) 6.2850 6.6452 6.7572 6.6094 6.9050
    Revenue (RMB) RMB45.459 RMB47.015 RMB52.496 RMB55.618 RMB60.598
    Chinese Inflation (3) 1.4% 2.0% 1.6% 2.1% 2.9%
    Net Profit Margin {A}/{B} 5.10% 6.67% 7.58% 7.52% 7.83%

    Notes

    (1) Averaged annual exchange rates taken from https://www.netcials.com/forex-yearl...-rate/CNY-USD/
    [2) I have revised my definitions of 'normalised profit' and 'revenues' from earlier years (see my posts 63 and 65).
    (3) I grabbed the CPI inflation rate for China from here: https://www.focus-economics.com/coun...hina/inflation

    Discussion

    The revenue growth rate in local currency per annum was:

    RMB45.459 x (1+g)^4 = RMB60.598 => g=7.45% (compounding)

    The annual revenue growth rate in the reporting currency (USD) was:

    $7,233m x (1+g)^4 = $8,776m => g=4.87% (compounding)

    For the first time the majority of my study period is a time when YUMC was separately listed. The annual compounding growth rate is significantly higher than in the previously quoted comparative post, and a lot higher than you might think if you just looked at the USD revenue growth rate. The benefits of having YUMC as a separate listed entity (from late 2016) may be showing through here.

    SNOOPY
    Last edited by Snoopy; 08-03-2021 at 11:08 AM.
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  2. #72
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    Default ROE Incremental Returns Since Listing (FY2020 perspective)

    Quote Originally Posted by Snoopy View Post

    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.

    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 EOFY2019
    Normalised Earnings {A} $472m $687m
    No. of Shares {B} 383m 395m
    eps {A}/{B} $1.23c +51c {D} $1.74
    Owner Equity {C} $2,443m $3,175m
    Owner Equity per share {C}/{B} $6.38 +$1.66 {E} $8,04
    Return on Incremental Equity / Share {D}/{E} +31%
    Last edited by Snoopy; 08-03-2021 at 12:49 PM. Reason: Work In Progress
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  3. #73
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    Default Covid-19 on the ground in China (FY2020.5 perspective)

    Quote Originally Posted by Snoopy View Post
    The latest Chinese Covid-19 outbreak (24th January 2021 report) is in the Hebei province, just outside of Beijing. The provincial capital Shijiazhung and the city of Xingtai, which encompasses Nangong, have been largely sealed off from the rest of the country. Community isolation and large-scale testing have also been enforced.

    Nearby Beijing, where around 2 million residents have been ordered to undergo new testing, and has reported two new confirmed cases. This is potentially serious for consumer confidence in 'Northern China'.
    I am thinking this issue needs more than an 'annual update'. If you follow the general media, the impression I get is that China has been relatively successful in controlling Covid-19. But what is really happening 'on the ground'? The restaurant business is a good proxy for this Here is what has happened 'so far' in FY2021/CY2021.

    Q1 FY2021

    First quarter sales were impacted by regional resurgences of COVID-19 before the Chinese New Year and tightened public health measures across China. The tightened measures and associated consumer caution resulted in smaller gatherings and a noticeably reduced volume of travel. Our transportation inand tourist locations, representing high single digits of our store mix, were significantly affected by the decline in travel. According to government statistics, the number of travelers was down approximately 40% versus 2020, and down approximately 70% versus 2019, when compared to the corresponding 40-day Chinese New Year holiday periods. These impacts were more pronounced for KFC, which accounts for most of our stores in these locations.

    The pandemic has also introduced volatility and uncertainty to our operations. The Company acted and reacted nimbly to changing conditions. By planning for a wide range of possible situations, our team worked tirelessly to meet shifting demand across city tiers, trade zones and sales channels. Leveraging our digital capabilities, direct connection with consumers and in-house supply chain, we were able to deftly adjust offers and promotions to changing market conditions. We deployed resources flexibly to help ensure the best possible levels of restaurant staffing and delivery riders, as demand patterns shifted.

    Looking ahead, the Company expects a full recovery of same-store sales to pre-COVID-19 levels to take time, and the unevenness of recovery to linger for several reasons. Public health measures and social distancing behaviors persist as occasional outbreaks, such as those in the first quarter and more recent outbreaks in Yunnan province, remind people of the lingering risks. Dine-in traffic, as well as sales at our transportation locations, remains well below 2019 levels. Accordingly, the Company will continue to focus on driving the sales recovery while ensuring the safety of our employees and customers.

    Q2 FY2021

    The COVID-19 pandemic continued to impact the Company’s operations and results in the second quarter. Same-store sales recovery to pre-COVID levels was interrupted by the Delta variant outbreak in southern China, which started in late May. Local authorities tightened preventive health measures and social distancing requirements. Many communities were locked down. At the peak of this outbreak, approximately 400 of our restaurants were either temporarily closed or provided delivery and takeaway services only. This represents nearly 30% of our restaurants in Guangdong province, which has two of the four tier one cities in China, is the largest economy in China and one of Yum China’s largest markets. Across China, cautious consumer behavior persists as sporadic outbreaks remind consumers of the lingering risks. Same-store dine-in volume is still well below 2019 levels while off-premise occasions continue to grow rapidly. Overall, the pace of recovery varied by region with eastern and western China recovering relatively faster.

    Traffic at our transportation and tourist locations improved from the first quarter but remained well below pre-COVID levels. According to government statistics, tourism spending for the three holidays in the second quarter was still down 20% to 40% compared to 2019. The impact was more pronounced for KFC, with its higher mix of stores in transportation and tourist locations.

    As we entered July, traffic and sales continue to be pressured by lingering effects of COVID-19, such as reduced travel, a shortened school holiday and regional outbreaks in Yunnan. The latest outbreak in Nanjing, the capital city of Jiangsu province, is still evolving. The Company continues to expect that a full recovery of same-store sales will take time, with the recovery path impacted by regional resurgences and the corresponding public health measures. We will continue to focus on the elements of the business under our control, such as food innovation, compelling value propositions, a focus on customer experience, and operating efficiency, to drive sales and protect margins.

    Special Report: 14 September 2021

    Impact of the Delta Variant Outbreak

    In our second quarter 2021 earnings release, we mentioned that the latest COVID-19 outbreak of the Delta variant, which started in late July in Nanjing, was evolving quickly. Since then, this outbreak has become the most widely spread regional outbreak since the national outbreak in 2020, impacting 16 provinces. A large number of areas were identified by the government as medium to high risk. As a preventative health measure, several major cities were locked down. For example, Nanjing and Yangzhou, key cities in eastern China, the most vibrant economic region and the most important market for us, were the most affected. Zhengzhou and Wuhan, the capital cities of Henan and Hubei provinces respectively, were also significantly affected. Strict public health measures were implemented across the country, including closures of many tourist locations. These actions led to substantially lower travel volume, cancelled summer holiday trips and fewer social activities, which significantly impacted the restaurant industry.

    At the peak of the outbreak in August 2021, more than 500 of our stores in 17 provinces were closed or offered only takeaway and delivery services. Same-store sales in August 2021 declined by mid-teens percentage year over year, or close to an approximately 20% decline compared to August 2019. This was mainly due to a same-store dine-in sales decline in that month of approximately 20% to 30%, and a sharp drop in sales at our transportation and tourist locations of approximately 40% to 50% year over year, also on a same-store basis.

    While the outbreak has subsided in recent days and restaurant traffic is gradually recovering, our operations continue to be heavily impacted. As we have previously noted, our business recovery remains to be uneven and nonlinear, as regional outbreaks occur and corresponding public health measures are implemented. The Company expects a recovery of same-store sales to take time.

    As a result of the Delta variant outbreak, the Company has experienced significant operating deleveraging, and favorable based on the current trend, our adjusted operating profit, which excludes special items, may be reduced by approximately 50% to 60% for the third quarter of 2021, compared to the same period last year. This is primarily due to the significant sales deleverage impact from sharply reduced sales, which is especially pronounced in the third quarter, a seasonally strong quarter for sales and margins. Moreover, as we have previously discussed, our restaurant margins are further pressured by the diminishing favorable impact of commodity prices, by wage inflation of mid to high single digits, and as we step up value promotions to drive traffic.

    -------------------

    However, the 'special report' ended on an upbeat note:

    --------------------

    Confidence in Long-Term Growth

    The COVID-19 pandemic may pose volatility in the near-term, but the fundamentals of our business remain strong. We are confident in the long-term growth potential of China. We will continue to act to ensure the Company remains well-positioned to capture future opportunities. The Company will accelerate its store network expansion, expecting to open 1,300 gross new stores in 2021, strengthen offerings for dine-in, delivery, takeaway and retail, and invest in digital and technology.

    ------------------------

    The share price of YUMC has fallen close to 6% today to $US57.60 on this 'Special Update' news.

    SNOOPY
    Last edited by Snoopy; 16-09-2021 at 08:37 AM.
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  4. #74
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    Default

    Not sure if you're aware Snoopy but YUM Brands China is at risk of being delisted on the US stock exchange:

    https://finance.yahoo.com/news/china...174941949.html

    Matt Turner and Yiqin Shen
    Fri, March 11, 2022, 8:21 AM·2 min read









    China Stocks Trading in U.S. Tumble 10% After Wild Ride in Asia


    (Bloomberg) -- Chinese stocks are getting knocked down in U.S. hours after suffering intense swings in Asia, with the group heading toward its worst session since the global financial crisis.

    Most Read from Bloomberg

    The Nasdaq Golden Dragon China Index plunged 10% on Thursday, heading toward its biggest slide since October 2008. American depositary receipts of megacaps like Alibaba Group Holding Ltd. and Baidu Inc. tumbled at least 6%, with electric-vehicle companies including Nio Inc. and XPeng Inc. each down more than 9%.
    Aside from the geopolitical concerns that have caught many global investors off guard, Chinese stocks have been under intense pressure after months of regulatory crackdowns. Thursday’s selloff is a swift change of fortunes for the nation’s shares traded in the U.S. Just a day before, the group jumped the most in more than a month amid a broad-based rally in risk assets and speculation that Chinese authorities had stepped in during the Asian day to support the domestic market.
    Investors in Hong Kong were treated to an equally wild day of trading Thursday, with the Hang Seng Tech Index climbing as much as 4.4%, turning negative before closing higher by about 1%. That follows a similarly volatile session on Wednesday.
    The U.S. Securities and Exchange Commission this week identified five Chinese firms under the Holding Foreign Companies Accountable Act, which it says the Public Company Accounting Oversight Board was unable to inspect. The newly identified firms -- BeiGene Ltd., Yum China Holdings Inc., Zai Lab Ltd., ACM Research Inc. and HUTCHMED (China) Ltd. -- could be subject to delisting from U.S. exchanges if they fail to comply with the HFCAA’s auditing requirements for three consecutive years.

  5. #75
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    Default

    Quote Originally Posted by SBQ View Post
    Not sure if you're aware Snoopy but YUM Brands China is at risk of being delisted on the US stock exchange:

    https://finance.yahoo.com/news/china...174941949.html
    Yes this is risk associated with failure to giving suitable access to the accounts for US auditing purposes. This has been well flagged in the annual reports. I am not sure why this has suddenly hit the media today. But YUM China is also listed on the Hong Kong stock exchange.

    https://finance.yahoo.com/quote/9987.HK/

    So there is still a platform on which shareholders can trade their shares even if it is delisted in the USA.

    SNOOPY
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  6. #76
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    Default

    Hi Snoopy, did you buy on the Hongkong or US exchange? Thinking of dipping my toes in.

  7. #77
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    Default

    Quote Originally Posted by Walter View Post
    Hi Snoopy, did you buy on the Hongkong or US exchange? Thinking of dipping my toes in.
    I have my YUM China shares on the US exchange. IIRC post Covid-19, some NZ banks were a bit shy about dealing with Hong Kong dollars. Not sure if this situation has resolved itself. Nevertheless it wasn't a particular intention of mine to buy on the US exchange. I got allocated the shares there because I am a foundation shareholder and I got my YUMC from the US parent company YUM sell down (I am a shareholder in YUM as well).

    SNOOPY
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