Goldman Sachs lifts Yum China target to HK$459 on Q2 beat

Goldman Sachs lifted its Yum China target to HK$459 from HK$452, keeping a Buy rating after Q2 revenue rose 13 percent to $3.1 billion.

"Our menu innovations and breakthrough side-by-side modules are helping us broaden into new occasions and new customer segments," Joey Wat, CEO of Yum China, said.

Goldman raised its 2026 to 2028 earnings forecasts by about 2.5 percent, citing the second-quarter performance, updated foreign exchange assumptions and year-over-year margin improvement in the second half. The bank highlighted progress across new business formats: KCOFFEE cafés reached 3,300 locations with a target of 5,000 by year-end, KPRO surpassed 450 stores with the year-end target raised to 800 from 600, Pizza Hut WOW exceeded 400 outlets, and PH Burger Bar expanded to more than 200 locations in about six months, with plans to reach 500 to 600 by year-end.

Yum China expects to complete its acquisition of Pizza Hut brand rights in mainland China in August, funded by a $1.2 billion offshore bridge loan at about 2 percent interest. The deal is expected to add about 60 basis points to group margins through a 3 percent franchise fee saving, with slight EPS accretion in 2026 and mid-single-digit accretion in 2027 and 2028.

The company opened a record 560 net new stores in the second quarter, up 67 percent from a year earlier, with franchisees accounting for 41 percent of openings. Yum China operated 19,297 stores as of June 30, 18 percent of which were franchised, and targets more than 20,000 outlets in 2026.

Management reaffirmed full-year 2026 targets including same-store sales growth of 0 to 2 percent, system sales growth in the mid-to-high single digits, operating profit growth in the high single digits and double-digit EPS growth. The company raised its Pizza Hut net new store guidance to more than 800 per year for 2027 and 2028, up from 600.

Yum China plans to return $1.5 billion to shareholders and expects capital expenditures of $600 million to $700 million in 2026. KFC posted 7 percent system sales growth in the quarter, while Pizza Hut returned to positive same-store sales growth. Management expects third-quarter same-store sales and transactions to post positive growth.

The target price upgrade reflects Goldman's confidence in Yum China's new business engines and the accretive Pizza Hut brand acquisition. Investors will watch third-quarter results for confirmation of management's expectation of positive same-store sales and transaction growth.

This article is for informational purposes only and does not constitute investment advice.