Christine Peng

Christine Peng from UBS requested more details on the economics of the K-Pro model, including its ticket value, margin profile, and customer profile differentiation from the main KFC format. She also asked about the management's rationale behind Pizza Hut launching burgers, their product differentiation and pricing strategies compared to KFC's burgers, and the long-term development strategy for this category.

Answer

CEO Joey Wat outlined plans to double K-Pro stores to 400+ in 2026, emphasizing its value for money, strong food safety, and distinct menu (energy bowls, smoothies). She noted its operational efficiency through shared KFC resources and high engagement from KFC members (80-90% of sales), driving frequency for light meal options, especially in office locations. For Pizza Hut burgers, Joey explained they use freshly made pizza crust dough for buns, offering unique flavors like pineapple and bolognese sauce. She highlighted their success in catering to the single-person meal segment, which grew 50% in 2025, and expressed continued learning and development for this new category.

Christine Peng requested more details on the economics of the K-Pro model, including ticket value, margin profile, and customer differentiation from KFC's main format. She also asked for the rationale behind Pizza Hut launching a burger, its product and pricing differentiation from KFC's burger, and the long-term development strategy for this category.

Answer

CEO Joey Wat stated plans to double K-Pro stores in 2026, highlighting its value for light meals, distinct menu (energy bowls, smoothies), and operational efficiency through shared resources. She noted that 80-90% of K-Pro sales come from KFC members, driving frequency, especially in office locations. For Pizza Hut's burger, Joey explained it uses freshly made pizza crust dough, offers unique flavors like pineapple and bolognese, and caters effectively to single-person meals, a category growing 50% for Pizza Hut in 2025.

Christine Peng asked about the sustainability of KFC's 2% same-store sales growth, the contributions from delivery subsidies and new formats like K-Coffee and KPRO to this growth, and the economics of KPRO.

Answer

CFO Adrian Ding noted that KFC's 2% same-store sales growth and K-Coffee expansion were above expectations, but predicting sustainability is difficult due to market dynamics. He stated that KPRO, as a side-by-side module, contributes incremental sales and profits, with initial progress being encouraging, but specific economics are not yet disclosed due to its early stage. CEO Joey Wat added that KPRO leverages KFC's resources for synergy, resulting in smaller incremental investment and a focus on sales first, then profit.

Christine Peng from UBS inquired about the sustainability of KFC's 2% same-store sales growth, which exceeded expectations, considering potential benefits from delivery platform subsidies and contributions from new formats like K-Coffee and K-Pro. She also requested a brief overview of K-Pro's economics.

Answer

CFO Adrian Ding acknowledged KFC's 2% SSG and K-Coffee expansion were slightly above internal expectations, but noted predicting SSG is difficult due to market dynamics and consumer rationality. He stated Yum China aims to maintain Q4 SSG at similar levels to Q3 and achieve 12 consecutive quarters of same-store transaction growth. Regarding K-Pro, he explained it's a side-by-side module contributing incremental sales and profits, with larger incremental sales than K-Coffee, but specific economics are not yet disclosed due to its early stage, though initial progress is encouraging. CEO Joey Wat added that K-Pro leverages KFC's store space, membership, kitchen, and labor for significant synergy, resulting in smaller incremental investment and incremental sales/profit, with a focus on sales first, then profit.

Christine Peng of UBS Group asked for the reasons behind the lowered full-year CapEx guidance and the outlook for capital expenditures in 2026 and beyond.

Answer

CFO Adrian Ding clarified the reduction from $700-800M to $600-700M was not due to fewer store openings but rather a 5-10% decrease in CapEx per store for both KFC and Pizza Hut. He projected that future annual CapEx would likely remain at this new, lower level, which should support strong free cash flow generation.

Christine Peng from UBS Group questioned the reasons for the lowered full-year CapEx guidance and asked for the outlook on capital expenditure trends for 2026 and beyond.

Answer

CFO Adrian Ding explained that the CapEx guidance was reduced from $700-800M to $600-700M primarily due to lower CapEx per store for both KFC and Pizza Hut, not a change in the new store opening target. He indicated that future annual CapEx would likely remain at a similar level, which should support strong free cash flow growth.

Christine Peng asked for the long-term view on KCOFFEE, given the increased store opening target, and its financial impact on the host KFC store's economics.

Answer

CEO Joey Wat affirmed a strong long-term commitment to KCOFFEE, citing its promising growth and large untapped potential within KFC's member base. She explained that the KCOFFEE module provides a low-single-digit lift to the host store's same-store sales. The bottom-line impact is also positive and protected because the incremental investment is light, as it shares the existing store's equipment, labor, and location.

Christine Peng from UBS requested more clarity on the store economics of the Pizza Hut WOW format, including details on unit revenue and margin, to better assess its future potential.

Answer

Acting CFO Adrian Ding described the Pizza Hut WOW model as a promising but still maturing format that is only seven months old. He noted that it shows significant outperformance in dine-in sales, but delivery sales are still improving and lag the regular Pizza Hut model. Regarding profitability, he stated that while Cost of Sales and Cost of Labor are becoming comparable to the main model, the overall margin still has a slight gap. The primary focus for 2025 will be on improving delivery sales and closing the margin gap for the WOW format.

Christine Peng of UBS inquired about RLX Technology's new initiatives for 2025 to drive overseas market share gains and asked for an update on the company's shareholder return policy.

Answer

Sam Tsang, Head of Capital Markets, explained that the company's overseas strategy focuses on tailoring product portfolios and business strategies to each market's unique characteristics. This includes developing localized flavors with their in-house e-liquid team and using data-driven insights to optimize route-to-market strategies with local partners. Regarding shareholder returns, Tsang reiterated the company's commitment to returning a significant portion of non-GAAP net profit through share repurchases and cash dividends, noting that USD 332 million had been returned cumulatively as of December 2024.