YUM China Sss Could Disappoint in 2H16 -  Set to Pick Up In Early 2017

• Yum’s China Same Store Sales (SSS) are very sensitive to Chinese consumer demand. We have found that Employment Expectations from the MNI China Consumer Sentiment Survey offer a very good proxy for consumer demand.
• When adjusting for the impact of food safety scares (which impacted sales from the 4Q12 to 2Q13 and then again from the 3Q14 to the 2Q15) we find that two inputs (Employment Expectations and regional differences in the CSI) explain 65% of the variation in Yum’s China SSS.
• In the absence of another food safety scare Employment Expectations indicate that Yum’s China SSS can be expected to fluctuate around annual growth rates of 2% YoY through the 4Q16 before picking up to growth rates around 5% YoY in the 1Q17.
• This is considerably below some estimates for the 2H16 and could disappoint the market as they are announced.

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