$19.20
$53.50
bear $19.20
base $36.00
bull $53.50
margin of safety $20.00
market price* $45.12
Yum China runs and franchises KFC, Pizza Hut and Taco Bell restaurants in mainland China under a licence from Yum! Brands. The licence runs for 50 years from October 31, 2016 for KFC and Pizza Hut (and 50 years from April 15, 2022 for Taco Bell, subject to milestones), renews automatically for further 50-year terms as long as Yum China is in good standing, and costs 3% of net sales. At the end of 2025 the system had 18,101 restaurants, up 10% from 16,395 a year earlier and up from 11,788 at the end of 2021. About 17% are operated by franchisees. The company is incorporated in Delaware, but every restaurant is in China, so the value depends on the Chinese consumer, Chinese regulation and the yuan. How we measure earnings. We use owner earnings: cash from operations, minus the swing in working capital, minus stock-based compensation (a real cost), minus the capital spending needed just to maintain the restaurants (spending to open new ones is treated as growth). Yum China's 2025 owner earnings were about $927 million ($2.50 a share on 371 million diluted shares). Over the past decade the series runs $428M (2016), $546M, $665M, $672M, $590M (2020), $453M (2021), $464M (2022), $734M (2023), $735M (2024) and $927M (2025). About 7% of consolidated profit belongs to minority partners in subsidiaries, so we take 7% off before valuing (2025 net income was $1,004M including minorities versus $929M to Yum China shareholders). The baseline. We do not use 2025 alone. The COVID-era and lockdown years of 2020 to 2022 are unrepresentative, and 2025 benefited from lower capital spending ($626M versus $705M and $710M in the two prior years) and from adding back a $100M working-capital outflow, which lifts the figure. We use $735M, the median of 2023, 2024 and 2025, which is the reopened business. The pre-COVID years 2018 and 2019 ($665M and $672M, with far fewer restaurants) are consistent with it. After the 7% minority share, the baseline is about $684M, or $1.84 a share. Growth we credit. Yum China keeps adding restaurants, including in the 2022 lockdown year: units rose 10% in 2022 and 10% in 2025. But new units are smaller and have not added to profit one-for-one: in 2025 revenue grew 4%, of which only 3 points came from net new units and 1 point from same-store sales, after same-store sales fell 3% in 2024. Last year owner earnings rose 26%, but that jump reflects lower capital spending and working-capital timing, not a rate we can repeat. For the base case we credit 3% a year for three years, 2% for three years and 1% for four years, then hold earnings flat. We do not credit same-store recovery, margin gains, the company's plan to raise the franchise share of new stores to 40-50%, or new brands, because these have not yet been demonstrated. Base case: about $36 a share. Owner earnings grow from $684M to roughly $825M by year 10 on the path above, then stay flat. Flat earnings are justified because KFC has operated in China since 1987 (12,997 KFC restaurants in over 2,500 cities at the end of 2025) and the licence renews automatically; nothing we can point to in the filings supports growth beyond that, so none is assumed. Bear case: about $19 a share. Same-store sales fall again (they fell 7% in 2022 and 3% in 2024), the extra restaurants earn little, and earnings return to roughly the 2021-2022 level of about $460M ($428M after minorities), with no growth ever. The company has also been under a national transfer-pricing tax audit in China since 2016, covering related-party transactions for 2006 to 2015 and focused on its franchise arrangement with Yum! Brands. The company says an adverse ruling could have a material effect but cannot estimate the amount, so it is not priced here, but it is a real downside. The company also warns that its New York listing could be at risk if US regulators were again unable to inspect its auditors' work. Bull case: about $53.50 a share. Earnings hold at the 2025 level ($927M, or $862M after minorities), which the business has already reached, and grow 5% a year for five years and 3% for five more, in line with the 5% annual revenue growth since 2019 ($8.8B to $11.8B), then stay flat. What we judge the shares to be worth, and what could prove this wrong. We regard about $36 as the middle estimate, with a plausible range of roughly $19 to $53.50. The margin-of-safety price is $20, close to the bear case, because of the concentration in a single country, the unresolved tax audit and uneven same-store sales. The estimate would be wrong on the upside if same-store sales and margins recover faster than we allow; on the downside if weak same-store sales or an adverse tax ruling cut into profits. Interest earned on the company's cash is already inside owner earnings, so we do not add cash separately. This is the first analysis of Yum China, so there is no prior estimate to compare with.