Yum China Holdings, Inc. (NYSE: YUMC)

Sector: Consumer Cyclical Industry: Restaurants CIK: 0001673358
Market Cap 18.12 Bn
P/B 3.18
P/E 20.05
P/S 1.57
ROIC (Qtr) 11.80
Div Yield % 1.32
Rev 1y % (Qtr) 4.40
Total Debt (Qtr) 1.84 Bn
Debt/Equity (Qtr) 0.32

About

Yum China Holdings, Inc., often recognized by its stock symbols YUMC and YUM, is a prominent player in the restaurant industry, specifically in China. The company boasts a diverse portfolio of renowned brands, including KFC, Pizza Hut, Lavazza, Huang Ji Huang, Little Sheep, and Taco Bell, with over 14,644 restaurants spread across China. Yum China's operations span across various segments of the restaurant industry, with a primary focus on quick service restaurants (QSR) and casual dining restaurants (CDR). The company's geographical reach extends...

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Price action

Investment thesis

Bull case

  • Strong operating cash flow of 1.51B provides robust 0.82x coverage of total debt 1.84B, indicating excellent debt servicing capability and financial flexibility.
  • Healthy cash reserves of 648M provide 22.34x coverage of short-term debt 29M, demonstrating strong liquidity position and minimal refinancing risk.
  • Strong tangible asset base of 8.96B provides 4.87x coverage of total debt 1.84B, indicating robust asset backing and low credit risk.
  • Operating cash flow of 1.51B provides exceptional 20.66x coverage of minority interest expenses 73M, showing strong core operations.
  • Operating cash flow of 1.51B provides strong 36.78x coverage of stock compensation 41M, indicating sustainable incentive practices.

Bear case

  • Operating cash flow of 1.51B barely covers its investment activities of (466M), with a coverage ratio of -3.24, indicating heavy reliance on external financing for growth which may not be sustainable in a tighter credit environment.
  • Operating cash flow of 1.51B provides thin coverage of dividend payments of (329M) with a -4.58 ratio, suggesting potential dividend sustainability issues if operational performance deteriorates.
  • Operating earnings of 1.26B show weak coverage of depreciation charges of 856M, with a 1.48 ratio indicating high capital intensity and potential reinvestment needs.
  • High depreciation of 856M relative to operating cash flow of 1.51B, which is 0.57x suggests significant maintenance capital requirements affecting free cash flow.
  • Free cash flow of 941M represents just -3.37x of debt issuance (279M), suggesting concerning reliance on leverage rather than internal cash generation for growth.

Peer comparison

Companies in the Restaurants
S.No. Ticker Company Market Cap P/E P/S Total Debt (Qtr)
1 MCD Mcdonalds Corp 222.05 Bn 26.39 8.45 55.82 Bn
2 SBUX Starbucks Corp 95.51 Bn 51.45 2.57 26.61 Bn
3 CMG Chipotle Mexican Grill Inc 50.94 Bn 33.15 4.32 4.98 Bn
4 YUM Yum Brands Inc 43.17 Bn 29.83 5.36 11.55 Bn
5 QSR Restaurant Brands International Inc. 22.43 Bn 24.33 2.42 15.64 Bn
6 DRI Darden Restaurants Inc 21.91 Bn 19.91 1.77 6.16 Bn
7 YUMC Yum China Holdings, Inc. 18.12 Bn 20.05 1.57 1.84 Bn
8 DPZ Dominos Pizza Inc 14.57 Bn 24.72 3.01 5.05 Bn

Industry comparisons

Current Valuation Value Ind Avg Percentile
EV to Assets EV to Assets 1.75 2.05
EV to Cash from Ops. EV/CFO 12.82 16.57
EV to Debt EV to Debt 10.50 4.75
EV to EBIT EV/EBIT 15.30 3.45
EV to EBITDA EV/EBITDA 9.16 9.76
EV to Free Cash Flow [EV/FCF] EV/FCF 20.55 29.06
EV to Market Cap EV to Market Cap 1.07 6.55
EV to Revenue EV/Rev 1.67 2.40
Price to Book Value [P/B] P/B 3.18 -1.40
Price to Earnings [P/E] P/E 20.05 13.35
Dividend Metrics Value Ind Avg Percentile
Dividend Coverage Ratio Div Coverage (Qtr) 2.75 -9.56
Dividend Payout Ratio % Div Payout % (Qtr) 26.40 18.72
Dividend per Basic Share Div per Share (Qtr) 0.64 0.84
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr) 25.03 30.41
Interest Coverage Interest Coverage 0.00 -86.85
Growth Metrics Value Ind Avg Percentile
Capex Growth (1y) % Capex 1y % (Qtr) 22.75 -24.56
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr) -45.68 35.50
Dividend Growth (1y) % Div 1y % (Qtr) 4.92 -0.72
EBIAT Growth (1y) % EBIAT 1y % (Qtr) 1.23 -564.81
EBITDA Growth (1y) % EBITDA 1y % (Qtr) 5.61 25.78
EBIT Growth (1y) % EBIT 1y % (Qtr) 2.35 -507.68
EBT Growth (1y) % EBT 1y % (Qtr) 2.35 -41.98
EPS Growth (1y) % EPS 1y % (Qtr) 6.14 -126.51
FCF Growth (1y) % FCF 1y % (Qtr) 43.23 5,724.78
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr) 7.77 23.70
Liquidity Ratios Value Ind Avg Percentile
Asset Utilization Ratio Asset Util Ratio (Qtr) 1.05 0.99
Cash Payout Ratio Cash Payout (Qtr) 0.16 0.07
Cash Ratio Cash Ratio (Qtr) 0.28 0.78
Current Ratio Curr Ratio (Qtr) 1.32 1.47
Debt to Equity Ratio Debt/Equity (Qtr) 0.32 0.05
Interest Cover Ratio Interest Cover Ratio 0.00 -86.85
Times Interest Earned Times Interest Earned 0.00 -86.85
Profitability Value Ind Avg Percentile
EBITDA Margin % EBITDA Margin % (Qtr) 18.30 7.71
EBIT Margin % EBIT Margin % (Qtr) 10.93 -2.27
EBT Margin % EBT Margin % (Qtr) 10.93 -1.97
Gross Margin % Gross Margin % (Qtr) 17.50 34.04
Net Profit Margin % Net Margin % (Qtr) 7.80 -3.69