Yum China adds spice to its tech credentials

[HONG KONG] Yum China is adding extra flavour to its technology credentials. The operator of KFC and Pizza Hut in the People's Republic has raised US$2.2 billion in a secondary listing at a valuation higher than e-commerce giant Alibaba. Volatility in Internet stocks, though, risks a not-so-finger-lickin' good debut.

It's the latest New York-listed outfit to tap Hong Kong markets, where listing rules were recently relaxed to woo China's "new economy" companies. Alibaba and its rival JD.com, as well as video-games giant NetEase have all debuted shares in the Asian financial centre on the back of the change.

The purveyor of fried chicken in a bucket may not be an obvious high-tech star, but boss Joey Wat is betting that a "digital ecosystem" of KFC and Pizza Hut apps is appetising. The company had some 240 million so-called members as at 2019, which helped lift online orders to an impressive 61 per cent of total sales last year. Indeed, Yum China's offer price of HK$412 amounted to some 26 times forecast 2021 earnings, Refinitiv data shows. To compare, Alibaba and NetEase trade at 24 and 22 times forward earnings respectively.

But Yum China's tech badge comes with some downside too.

After a mega-rally of US tech stocks, shares have started to fall. The offer price represented a near-5 per cent discount to the Thursday close on its New York stock but, as at Friday's close, a rout had erased most of the difference. That may deter buyers looking for a bargain in the open market.

Other factors may also dampen enthusiasm. Yum China's recovery from pandemic pains has been uneven, for example: Although nearly all its roughly 10,000 restaurants are back up and running, total revenue and same-store sales for the quarter ending June both declined 11 per cent from a year earlier. Moreover, the Alibaba-backed fintech colossus, Ant, is also readying for a giant initial public offering in the city, which could draw away demand and liquidity. Yum China's tech credentials will be under great review.

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Yum China, the operator of the KFC, Pizza Hut and Taco Bell fast-food brands in China, said on Sept 4 that it had priced its Hong Kong secondary offering at HK$412 per share, raising around HK$17.3 billion (S$3.05 billion).

Yum China's Hong Kong shares will start trading on Sept 10.

REUTERS