China’s largest quick-service restaurant operator
This fast food company is leading quick-service restaurant franchise in China and operates the KFC and Pizza Hut brands. The company first commenced operations in China in 1987 as a subsidiary of an American group before being spun off in 2016. Today, the company operates the largest restaurant network in China with over 10,000 stores across 1,200 cities.
It possesses a nationwide supply chain and logistics network, a thousand-strong team focusing solely on store expansion, and its own delivery platform and rider fleet, all of which enables it to grow while controlling costs and maintaining product quality. The company’s scale, execution ability and innovation are significant sources of its competitive advantage. For example, the company has a smart promotion system that regularly engages millions of their KFC and Pizza Hut loyalty scheme members, who in turn generate over 50% of sales.
The company and management are strongly aligned with shareholders and have a culture that embraces innovation. The company also takes its environmental and social obligations seriously. For example, it incorporates healthier items such as salad and congee into its menu and is an active member of the Chinese Nutrition Society. The company also aims to reduce wastage and have cut paper and plastic usage by around 9,000 tons a year. They are also committed to further improving their sourcing for palm oil and paper; and provide welfare and insurance coverage not only to its front line staff but also their elderly parents, which shows the value they place on staff wellbeing. We believe these investments will enable them to continue to grow sustainably and benefit from China’s growing domestic consumption trends.
Return on invested capital (ROIC) is the amount of money a company makes that is above the average cost it pays for its debt and equity capital.
Free Cash Flow (FCF) is a measure of a company's financial performance, calculated as operating cash flow minus capital expenditures.
Source: Company data, Macquarie Research, Bloomberg, as at 30 June 2022.
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