Introduction:
Yum China Holdings Inc. (YUMC) experienced a significant decline in its share price, dropping by as much as 10% on Tuesday, following concerns raised by analysts at UBS regarding potential downside risks to the company's first-quarter guidance.
Key Points:
- YUMC previously provided guidance for the first quarter, indicating relatively flat recurring operating profit. The company is scheduled to report its financial results for the quarter ending March 31 on April 29.
- Despite maintaining a Buy rating on the stock, UBS raised its price target slightly to $54 from $55 per share.
- Following a conversation with Yum China's management, UBS revised its projections, now anticipating a 13% decline in net profit for the first quarter. This adjustment factors in a lower restaurant profit margin and a reduced general and administrative expense ratio.
- Analysts at UBS noted that YUMC has underperformed MSCI China staples and discretionary indexes post the Chinese New Year, suggesting that the market may have already priced in some of the earnings downside risks.
- Additionally, UBS observed increasing competition in Yum China's delivery business, adding to concerns about the company's performance in the upcoming quarter.
Conclusion:
The sharp decline in Yum China's share price reflects investor apprehension following UBS's cautionary assessment of potential downside risks to the company's first-quarter performance. With concerns about profit margins and heightened competition in the delivery sector, investors will be closely monitoring YUMC's upcoming financial results announcement.
