Yum China has emerged as a interesting investment opportunity in the fast-food industry in China within our global equity team at Canada Life Asset Management. A spin-off from Yum! Brands, Yum China is the operator of KFC, Pizza Hut, and Taco Bell in China. It has also partnered with Lavazza to grow the coffee shop concept in China. With a unique strategy tailored to the Chinese market, Yum China has leveraged local tastes and an advanced infrastructure to position itself as a premier player in the Chinese quick-service and casual dining sectors.
The company has a strong heritage in China. KFC opened its first restaurant in Beijing in 1987, with Pizza Hut following suit in 1990. Since then, these brands have grown significantly, with over 11,000 KFC restaurants in around 2,200 cities across China and 3,600 Pizza Hut restaurants opened in over 800 cities as at the end of September 2024.
Yum China’s strong market position was confirmed at its Q3 2024 results call, during which management announced that in the first nine months it generated $8.7 billion in revenue, over $1 billion in operating profit, and there were 1,200 net new stores.
There is now also a shareholder return story to the stock. A year ago, the company set its three-year plan to return $3 billion to shareholders through dividends and share repurchases from 2024 to 2026. At the latest earnings call, it updated that plan, to step up capital returns by 50% to $4.5 billion over the same period. This includes $1.5 billion in 2024.
The company remains a brave innovator. Via KFC, it launched a disruptive limited-time offer of an original recipe chicken latte during the quarter. Meanwhile, its Durian Pizza now comprises one in every four pizzas sold in Pizza Hut China; nearly 30 million of the variety were sold in the first three quarters of 2024.
Yum China is currently held within WS Canlife Global Equity Fund and the WS Canlife North American Fund. More information on the funds can be found here
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