Yum China to Raise $2.22 Billion in Secondary Hong Kong Listing; Target Price $61

Yum China, an American Fortune 500 fast-food restaurant company incorporated in the United States and headquartered in Shanghai, said it is considering to raise $2.22 billion in its secondary Hong Kong listing, two sources with direct knowledge told Reuters.

Yum China, which manages KFC, Pizza Hut and Taco Bell restaurants in the world’s second-largest economy said the final offer price for both the international offering and the Hong Kong public offering has been set at HKD 412 per share.

China’s largest restaurant company in terms of 2019 system sales, today announced the pricing of its global offering of 41.19 million new shares of common stock, which comprises an international offering and a Hong Kong public offering.

Subject to approval from the Stock Exchange of Hong Kong Limited, the Shares are expected to begin trading on the Main Board of the SEHK on September 10, 2020, under the stock code 9987.

Yum China’s shares traded 2.54% lower at $ 53.38 on Friday. However, the stock is up over 12% so far this year.

Yum China stock forecast

Seven analysts forecast the average price in 12 months at $61.59 with a high forecast of $63.00 and a low forecast of $60.15. The average price target represents a 14.27% increase from the last price of $53.90. From those seven analysts, six rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $58 with a high of $70 under a bull-case scenario and $35 under the worst-case scenario. Jefferies raised their price objective on Yum China to $62 from $59.

Other equity analysts also recently updated their stock outlook. Daiwa Capital Markets raised Yum China from a “neutral” rating to an “outperform” rating. Bank of America lifted their price objective on Yum China to $52 from $50 and gave the stock a “buy” rating. At last, Nomura Securities reaffirmed a “buy” rating and issued a $53.70 price objective.

Analyst view

“Large white space potential given lower restaurant penetration in China relative to other emerging markets. Digital and delivery execution remain strong, as penetration rises and Yum China (YUMC) harvests customer data. Strategic partnerships with Ant Financial and Primavera offer big data and mobile opportunities to drive traffic,” said Lillian Lou, equity analyst at Morgan Stanley.

“New development opportunities at Taco Bell and Little Sheep offer optionality value. Near-term challenges as PH turnaround progress may pressure share performance. However, 2021e EV/EBITDA is 10x, which we still view as attractive,” she added.

Upside and Downside risks

Upside: 1) Faster than expected SSSG recovery from COVID-19 impact. 2) Strong lower-tier cities adoption. 3) Further margin upside with operating leverage and efficiency gain – highlighted Morgan Stanley.

Downside: 1) Consumer industry slowdown in China. 2) COVID-19 impact continues longer than expected. 3) Further supplier issues that damage brands.

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