The Net Profit In The First Half Of The Year Was Cut Down By The Outbreak Of The Second Listing Of Yum China In Hong Kong

After Netease and Jingdong, the Hong Kong stock market ushered in a second listing of catering giants.

In the morning of September 1, the restaurant chain Yum China (NYSE: yumc) announced on the Hong Kong stock exchange that it planned to sell a total of 41.91 million shares of common stock in the secondary listing of Hong Kong. Among them, about 40.23 million shares were allocated internationally, and about 1.68 million shares were publicly issued in Hong Kong. The highest offering price was HK $468 per share. It is estimated that the raised funds will be about HK $19.274 billion. The admission fee is as high as HK $23635.8.

It is expected that the shares will be officially listed on the Hong Kong stock exchange with "9987" as the security code on September 10. Since then, yum China will become the first enterprise to complete the re listing in Hong Kong in the second half of 2020.

In an open letter, Joey Wat, chief executive of Yum! Brands China, said in an open letter that the group's listing in Hong Kong would provide additional channels for corporate stakeholders to invest in the company, making the group closer to where it operates, closer to where customers and communities are thriving.

When the return of Hong Kong shares is in progress

According to the data, yum! Brands China Holding Co., Ltd. is the franchisee of Yum! Brands in the mainland of China. It has been granted the exclusive and authorized operation rights of KFC, Pizza Hut and Taco Bell in the mainland of China. After its spin off from Yum! Brands, yum! China was listed on the New York Stock Exchange independently on November 1, 2016.

At present, yum China owns the exclusive operation and authorized operation rights of KFC, Pizza Hut and Taco Bell in the Chinese market, and fully owns the brands of Dongfang Jibai, Xiaofeiyang, Huang Jihuang and coffei & joy. Over the past five years, yum China has expanded at an average rate of more than two new restaurants a day.

According to frost Sullivan's report, based on system sales in 2019, yum China is the largest catering enterprise in China. The latest financial report shows that under the influence of the epidemic situation, yum China still opened 169 new stores in the second quarter. As of July 30, this year, the number of restaurants in China has reached 10000. The Group expects to open a total of 800 to 850 stores (excluding Huang Jihuang) this year, with capital expenditure between $500 million and $550 million.

In its prospectus, yum China said that the funds raised from the secondary listing in Hong Kong will be mainly used to expand and deepen the restaurant network, and hopes to develop to more than 20000 restaurants in the future. At the same time, it will invest in digitization and supply chain, food innovation and value orientation, and high-quality assets, as well as for working capital and general corporate purposes.

On September 1, Zhu danpeng, an analyst of China's food industry, said in an interview with 21st century economic reporter that it was inevitable for Yum to continue to open stores and expand in China. In his view, yum's single store revenue is declining, so it must rely on opening new stores to support the growth of performance and profits. According to the financial report, in the second quarter of this year, the same store sales of Yum! Brands in China decreased by 11%, including KFC by 10% and pizza hut by 12%.

Zhu danpeng pointed out that at present, KFC's market in the first and second tier cities has been relatively saturated, while there are actually not enough consumers in the third, fourth and fifth tier cities. "Many young people who like to eat KFC are working in the first and second tier cities and some third tier cities. The development space of the sinking market has been squeezed very little." He further explained that "at present, there are only two or three business districts in a county or city. After opening shops in these business districts, where can they go?"

The reporter noted that in the first half of this year, the public offering of Netease and Jingdong, which are also listed in Hong Kong, recorded 360 times and 180 times of over subscription respectively. The market reaction of the secondary listing of Yum! Brands in China has also become the focus of attention.

According to media reports, market news indicated that Yum China (09987. HK) International placement response is ideal, and has been fully subscribed in less than half a day. "However, there is a rare case that the securities companies have no money to borrow. Because the funds locked up by Nongfu Shanquan (09663) have not been returned in time, the securities dealers think that the sales situation is not as hot as that of Nongfu, and there is a great chance of winning the bid in cash."

In this regard, Zhu danpeng believes that despite the development of China's catering industry in recent years, the overall performance of Yum! Brands in China shows that the asking price and admission fee are relatively high. As far as Hong Kong stock market is concerned, whether the current situation of its listing in Hong Kong is more comprehensive, and whether it can obtain a better response to the current situation and the composition of the Chinese stock market is still to be considered.

The haze of the epidemic is not over

According to the prospectus of Yum China's listing in Hong Kong, from 2017 to 2019, the revenue of Yum China was US $7.769 billion, US $8.415 billion and US $8.776 billion respectively. Compared with the same period of last year, the revenue of CSL was 2.856 billion yuan, which was 1.756 billion yuan in the same period of last year, which was 1.756 billion yuan in the same period of last year.

In 2017-2019, the company's net profit was $398 million, US $708 million and US $713 million respectively. In the first half of 2020, the net profit was only US $194 million, which was 51.5% lower than that of US $400 million in the same period last year. In response, the company explained that "due to the new crown pneumonia epidemic, the same store sales decreased and the restaurant temporarily closed down, resulting in reduced operating profits, which led to a decrease in profits."

In fact, although China's economy began to recover in the second quarter and GDP growth reached 3.2% year-on-year, the catering service industry continued to be affected by the normalization of epidemic prevention and control, and the recovery progress was far lower than that of other industries. According to the National Bureau of statistics, China's catering revenue fell by 15.2% in June, 13.4 percentage points lower than the growth rate of - 1.8% in total retail sales of consumer goods.

The catering industry is struggling, and the road to recovery is still a long way to go. According to the latest performance data, in the first half of the year, the revenue of 09922. HK listed in Hong Kong was about 949.5 million yuan, a year-on-year decrease of 23.25%; the loss attributable to shareholders was about 85.902 million yuan. Haidilao (06862. HK) had a year-on-year decrease of 16.5% to 9.761 billion yuan, with a loss of 965 million yuan. The net profit of Guangzhou Restaurant (603043. SH) dropped by more than 80% from January to June. McDonald's, the main rival of yum, recorded double-digit declines in revenue and net profit in the first half of this year. Even Starbucks also predicts that its main business income will drop by up to $3.2 billion in the second quarter.

According to the second quarter report of Yum! China, more than 99% of its stores have resumed business, but in different regions, the recovery rhythm of time periods and market segments is not balanced. "The company's business resumed orderly in April and may. However, due to the recurrence of epidemic situation in some areas, the great reduction of passenger flow in scenic spots and transportation hubs, and the postponement of school holidays, the business recovery in June was relatively slow, and these factors will continue to affect the business in July." Yum said in China.

From the perspective of the most stringent measures, the recovery of operations in East China is the slowest. According to the time period, with the orderly resumption of work and school, the business recovery on weekdays is the fastest, followed by weekends, and the business recovery on holidays is relatively lagging.

By brand, KFC's same store sales in the second quarter have recovered to 90% of the same period last year. The main reason is that compared with other brands of Yum Brands, KFC stores are more concentrated in transportation hubs and scenic spots, so it has been greatly affected by the decrease of business travel passenger flow and holiday tourism. The buffet activities carried out by Pizza Hut in designated cities have also achieved good results, and the passenger flow has recovered to a certain extent. However, yum China admits that as a casual restaurant, Pizza Hut continues to be affected by maintaining social distance.

For the performance of the second quarter, Qu Cuirong believes that this is the embodiment of the tenacity and adaptability of Yum China's business model. By rapidly adjusting its operations and marketing activities, yum China has been able to adapt to rapidly changing consumer preferences and market conditions, she said. At the same time, the digital foundation and membership system support the launch of new products and more cost-effective packages, promoting the growth of passenger flow.

"Through years of development and optimization of the flexible cost structure, we have ensured the profit margin. Coupled with core capabilities such as supply chain and integrated operation, we are confident and able to meet the challenges in the future." Qu Cuirong said.

However, Zhu danpeng believes that among the many brands of Yum Brands in China, only KFC brand is relatively stable, pizza hut is not warm and tepid, Xiaofeiyang and dongfangyibai are "lagging behind", and the overall performance is not satisfactory. Therefore, for Yum China, it is difficult to find a new growth engine for the group under the challenge of normalized epidemic prevention and control.