YumChina (NYSE:YUMC)

[SBQ]

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.

[Snoopy]

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

[Cricketfan]

So Snoopy, after all this analysis, have you invested? I've opened an account with Hatch, might buy a few YUMC to get started.

[Snoopy]

So Snoopy, after all this analysis, have you invested? I've opened an account with Hatch, might buy a few YUMC to get started.

Hi Cricketfan,

Yum China was a spin off from the parent franchise holder for KFC, Pizza Hut and Taco Bell, YUM Brands, which I held. So in a sense my 'Yum China' shares 'fell into my lap' at spin off time, and I have held them since. It has been a wild ride, mostly upwards, after that. Yum China was long touted as having big growth potential within YUM Brands. I was a little surprised, although happy enough, when it was carved out as a separate listed entity, two and a half years back. Back in the early 2000s, if you forgive the baseball analogy, Yum China was sold as being in the second innings in a ten inning ball game. To carry the analogy through, I would say we are in about the fourth innings now. So plenty of growth within China is still to come, albeit at a growth rate slower than in those earlier heady days.

As you have read on this very thread, I have researched Yum China extensively in recent months. I think it is a better company than I had thought it was, before I started my big read up. Like Restaurant Brands in NZ, they are cursed with the task of rolling out 'Taco Bell', the Mexican restaurant brand, in their own territories - a brand that hasn't really resonated outside of the Americas so far. I hope they make a go of it. But in the short term Taco Bell is a loss making distraction, with just a couple of test stores open in Shanghai.

Another 'distraction' is the new 'COFFii & JOY' café brand, an apparent attempt to head off the likes of Starbucks expansion into China. The 'COFFii & JOY' brand has been developed 'in house' at Yum China. Potentially we have another growth arm to exploit. However the reality is there were only 15 'COFFii & JOY' outlets at EOFY2018 end, When you operate close to 8,000 restaurants in total, this is not material. For now, I am sure that 'COFFii & JOY' is yet another loss making distraction. But in the future? Incidentally, YUM China are not quite the novices in the coffee market that some might think. KFC sold over 90 million cups of freshly ground coffee and generated revenue of over RMB1 billion in 2018.

I am convinced Yum China is a very good company. I particularly like the fact that they can open a KFC restaurant and have all incremental expenditure needed to do that paid back within a couple of years. But successful investment is not just about sharemarket investors buying good companies. What investors need is to buy good companies at good value prices. I see Yum China last traded at $US45.24. Based on last years (2017) results, this represents an historical PE ratio of:

$45.24 / $1.52 = 29.8

This is very high. I would like to wait to see the full results from last year released, to see if such a lofty PE ratio could be justified. Right now, I won't be investing more money into Yum China.
If I was a new investor, I would be waiting for something negative to happen that caused the YUMC share price to fall a bit (bearing in mind YUMC is very strong at its core and the SP should bounce back), and allow a more favourable investment entry price. YUMC has had a series of mishaps outlined earlier on this thread, that dragged their reputation down, for a while at least. The next mishap could be next week. But it could be five years away. I feel right now that YUMC is a better measuring stick to hold up against 'Restaurant Brands' as a determiner of value, rather than a sure fire investment in its own right.

SNOOPY

discl: hold RBD, YUMC, YUM

[Snoopy]

So Snoopy, after all this analysis, have you invested? I've opened an account with Hatch, might buy a few YUMC to get started.

I am convinced Yum China is a very good company. I particularly like the fact that they can open a KFC restaurant and have all incremental expenditure needed to do that paid back within a couple of years. But successful investment is not just about sharemarket investors buying good companies. What investors need is to buy good companies at good value prices. I see Yum China last traded at $US45.24. Based on last years (2017) results, this represents an historical PE ratio of:

$45.24 / $1.52 = 29.8

This is very high. I would like to wait to see the full results from last year released, to see if such a lofty PE ratio could be justified. Right now, I won't be investing more money into Yum China.

If I was a new investor, I would be waiting for something negative to happen that caused the YUMC share price to fall a bit (bearing in mind YUMC is very strong at its core and the SP should bounce back), and allow a more favourable investment entry price. YUMC has had a series of mishaps outlined earlier on this thread, that dragged their reputation down, for a while at least. The next mishap could be next week. But it could be five years away.

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.

If we look at YumChina, their success seems due to their ability to be seen as a Chinese company (the senior executive team is Chinese, they sell franchises to local Chinese) that provide tangible benefits for Chinese workers. Raising the standard of living of the Chinese people is something the Chinese government have been very successful at. And I would say any China based business that produce for all stakeholders benefits in line with the Chinese government's vision will continue to do well.

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

[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.

[SBQ]

Best of luck on your YUMC ventures. Personally I would rather pick YUM because of the cultural (anti-western) shift we're seeing in China. Also not touching any NZ listed companies at all. Not when corporate taxes are at 28% + a small market size of 4.5M population in NZ.

SEC reporting is strict as Elon Musk has continuous battles with their regulations. Is it a good thing? IMO overall yes. While you get the odd case like Enron frauds, I would say they are far fewer than the amount of fraud / unethical actions we've seen on listed NZX companies in the past century. In fact, it's a primary reason why so many NZ people shun at sharemarket investing because they remember the past of so many corrupted NZ corporations that have 'fleeced investors'.

As for China reporting... I only take it with a grain of salt. No one is blowing the whistle on China's mass corporate debt.

[Snoopy]

Best of luck on your YUMC ventures. Personally I would rather pick YUM because of the cultural (anti-western) shift we're seeing in China.

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.

As for China reporting... I only take it with a grain of salt. No one is blowing the whistle on China's mass corporate debt.

YUMC has no term debt, which is another appealing factor.

SNOOPY

[SBQ]

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?

[Snoopy]

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