YumChina (NYSE:YUMC)

[Snoopy]

	FY2013	FY2014	FY2015	FY2016	FY2017	FY2018e
Operating Profit (excluding Impairments (1))	$384m	$354m	$488m	$640m	$785m	$941m
subtract Insurance Payouts		($25m)	($5m)	($3m)
adjust Corp Jet Disposal			$15m	($2m)
adjust Foreign Currency Adjustments		$5m	$4m	$3m	$0m	$?m
subtract Wuxi KFC equity revaluation						($98m)
add Duojia Intangible Write Off						$12m
add Interest Earned	$5m	$14m	$8m	$11m	$25m	$36m
Equals Adjusted Normalised EBT	$389m	$348m	$510m	$649m	$810m	$891m
subtract Tax at 27% (2)	$105m	$94m	$137m	$175m	$219m	($241m)
subtract Foreign unrepatriated earnings Tax (3)						($20m)
Equals Adjusted Normalised NPAT {A}	$284m	$254m	$372m	$474m	$591m	$630m
Shares on Issue EOFY {B}	363.758m	363.758m	363.758m	383.344m	388.860m	392m
eps {A}/{B} {C}	78.1c	69.8c	$1.02	$1.27	$1.52	$1.61
Share Price 31 March (following) {D}	NA	NA	NA	$27.20	$41.50	$40.52 (4)
PE Ratio (D)/(C)	NA	NA	NA	21.4	27.3	25.2

Notes

1/ Significant impairment write offs for the 'Little Sheep' casual dining concept occurred in 2013 and 2014. YUMC own the intellectual property of the 'Little Sheep' brand. 'Little Sheep' had its foundation in Inner Mongolia, China. It specialises in 'Hot Pot' cooking popular in in China, especially in the winter months. 'Little Sheep' has more than 280 restaurants operating. A wholly-owned business that sells seasoning to retail customers is part of the 'Little Sheep' operation. But total turnover at 'Little Sheep' is less than 1.5% of the turnover of YUMC.

2/ The US corporate tax rate up to 31st December 2017, for the last few years, has been 35%. Looking at Note 17 on Income Tax in AR2017, the actual tax paid by YUMC on operations has been less than this. For the years 2017, 2016 the 'Statutory rate differential attributable to foreign operations' was 8.4% and 7.5%. I have rounded this off to 8%, subtracted the 8% from the 35% US statutory rate and come up with 27%. This is still above the 25% Chinese Corporate Income tax rate, and I cannot explain the difference.

3/ The 'deemed repatriation of accumulated and distributed foreign earnings' tax saw a provision of $164m made in the YUMC accounts for FY2017. But this tax bill is to be spread out over eight years. Because it is in integral part of the Trump tax reforms, I do not feel that it should be recorded as a one off. Therefore I am recording a $20m charge every year from 2018 to 2025 inclusive.

4/ Share price at 5th February 2019. 31st March date still in the future when table was compiled.

Conclusion: Pass Test

SNOOPY