Yum China has reported its 3Q26 results: revenue reached USD3,477mn (+8% YoY, +2% YoY ex-FX), close to the VA consensus of USD3,495mn; the attributable net profit (NP) reached USD311mn (+10% YoY), beating the VA consensus (USD307mn), with the net margin at 8.94% (+0.15pp YoY). The operating profit reached USD451mn (+13% YoY), exceeding the VA consensus (USD439mn); the core operating profit reached USD423mn (+6% YoY). For 3Q26, same-store sales came under pressure due to a high delivery base in 3Q25 and adverse August weather; operational efficiency improvements and Pizza Hut brand royalty savings supported upward profit performance. The company’s franchise business and innovative modules expanded further, with net new stores for 9M26 hitting a historical high and full-year store opening guidance revised upward. We are optimistic about medium-to-long-term growth potential and earnings resilience. Maintain BUY.
Incremental scenarios support transaction growth
For 3Q26, system sales grew by 3% YoY (ex-FX), while same-store sales fell by 3% YoY (+1% in 2Q26), primarily impacted by high delivery platform subsidies in 3Q25 and adverse weather in August. Same-store transaction volume grew by 3% YoY, marking 15 consecutive quarters of growth, which we think indicates that the strategy of capturing footfall across incremental scenarios remains effective. KFC SSSG was -3%, with TA/TC at -5/+3% YoY, and the average ticket size was RMB36 (-5.3% YoY); small-ticket orders from KCOFFEE and KPRO drove transaction volume growth while pulling down the average ticket size. Pizza Hut SSSG was -3%, with TA/TC at -8/+5% YoY, and the average ticket size was RMB65 (-7.1% YoY); mass-market pricing and single-diner scenarios expanded the customer base. Overall delivery sales grew by 7% YoY, accounting for 54% of restaurant revenues (+3pp YoY, flat QoQ); delivery growth slowed amid platform subsidy rollbacks, while dine-in and takeout improved QoQ.
Royalty exemption drives Pizza Hut margin improvement
For 3Q26, the restaurant margin was 17.8% (+0.5pp YoY), and the operating margin was 13.0% (+0.5pp YoY), marking 10 consecutive quarters of YoY expansion. For 3Q26, COS/COL/O&O stood at 31.5/26.5/24.2% (+0.2/+0.3/-1.0pp YoY); COL growth narrowed in 3Q26 as rider cost pressures eased marginally. The KFC restaurant margin was 18.6% (+0.1pp YoY), benefiting from operational streamlining and favorable raw-material prices. Pizza Hut restaurant margin was 15.3% (+1.9pp YoY), with royalty exemptions following the brand acquisition in August serving as the main contributor.
Earnings forecasts and valuation
Considering slight same-store pressure in 2026, upward revisions to store opening guidance, and margin enhancement from the acquisition of the Chinese Mainland Pizza Hut business in 2027, we adjust our 2026/2027/2028 attributable NP forecasts by -0.6/+1.5/-1.4% to USD1,017/1,148/1,220mn, with EPS of USD2.93/3.31/3.52. Considering the company’s leading operational capabilities and store expansion pace, we maintain our valuation premium and assign 19.3x 2027E PE (vs. its peers’ average of 15.4x on Bloomberg consensus), adjusting our US stock target price to USD64.02 (previous: USD64.90 based on 22x 2026E PE) and our H-share target price to HKD500.12 (previous: HKD507.03 based on an FX rate of 0.128).
Risks: store expansion diluting same-store revenue; slowing pace of store openings; new format performance falling short of expectations.