Yum China Holdings, Inc. (YUMC) is a prominent restaurant company in China and is undervalued due to its US-only listing. It exhibits strong profitability, with high margins, no debt, and robust free cash flow. The company is shifting its growth to higher-return opportunities, expecting rising average unit volumes, margins, and return on invested capital over the next five years. With a massive growth potential in the Chinese market and trading at a similar multiple to mature US-based restaurant companies, YUMC presents an attractive investment opportunity. While there are risks associated with being in China, along with complex business operations and limited guidance, the investment thesis is supported by optimistic five-year forecasts and positive market conditions.
In summary, Yum China Holdings offers investors the largest restaurant company in China with strong profitability and growth potential. The company’s sound financials, solid market position, and projected upward trends make it an appealing investment option despite the associated risks.
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