Yum China Holdings: Growth Challenges Are Something To Look At Now

2025-05-06 06:39:22 ET

Summary

• Recent Q1 2025 performance shows continued challenges in growth, with a decline in same-store sales and lowering ticket sizes.
• Current valuation provides little upside and more downside risks given the high earnings expectations ahead, giving room for underperformance. My rough target as of now is $41.
• On the positives, the stock is favored by global investors (especially passive funds) due to its limited correlation with the markets, stability against cycles, low volatility, and strong dividend policies.

Introduction

Yum China Holdings ( YUMC ) has recently announced its Q1 2025 results . The stock price had dropped following a slight miss in revenue and earnings expectations. In Q1, total system sales had grown by 2% YoY while 4% were attributable to new store unit contributions, which has been an essential driver of growth in the past few years with around 2,000 added per year (see below), reaching 16,642 in the recent quarter. Meanwhile, same-store sales have been declining since the beginning of 2023....

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