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Yum China's KFC Partners Sinopec & CNPC to Open Restaurants

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Yum China Holdings, Inc. YUMC brand KFC Restaurants recently announced a collaboration with China Petrochemical Corporation ("Sinopec") and China National Petroleum Corporation ("CNPC") to open its first franchised gas station restaurants in the country. Sinopec and CNPC have a total of over 50,000 gas stations in China, of which more than 30,000 belong to Sinopec.

Notably, the CNPC gas station in Kunming, Yunnan Province opened on Dec 17, 2019, while the restaurant in Sinopec gas station located in Dalian, Liaoning Province, is slated to open on Dec 23, 2019. Per the agreement, KFC becomes CNPC's only Western quick-service restaurant franchise partner in its gas station channel. 

The partnership aims at enabling Yum China expand its portfolio of brands to gas stations and highway service areas across China. To this end, the company expects to develop more than 100 stores in a span of three years.

Expansion Efforts Bode Well

Yum China is focused on unit growth of restaurants in order to boost incremental sales. In 2018, the company opened 819 restaurants and remodeled 931 stores. In the third quarter of 2019, Yum China opened 231 new restaurants and remodeled 126 stores, reflecting a significant rise from the first half of the year.

The company is aggressively remodeling on an accelerated pace in the fourth quarter, in a bid to achieve the target of completing 500 store remodeling for the full year.

Recently, it acquired a controlling stake in Huang Ji Huang, which has more than 640 restaurants. Most of them are franchise-based restaurants. Yum China will release additional details after the completion of the deal. The company roughly possesses five restaurants per million people in China, which is expected to grow to 15 stores per million. Moreover, there is ample potential to triple the current size of restaurant base, given the continued rise of the middle-class discretionary spending.

Additionally, Yum China relies heavily on the potential of KFC and Pizza Hut. With chicken being the most-preferred form of protein among the Chinese, KFC became the largest restaurant brand in the country. Yum China reported 12th consecutive quarter of system sales growth, with positive same-store sales improvement at both KFC and Pizza Hut during the third quarter of 2019.

Backed by solid expansion strategies and robust brand image, shares of the company have gained 41.7%, compared with the industry’s growth of 20.4%.

Zacks Rank & Other Stocks to Consider

Yum China currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks from the same space include Chuy's Holdings, Inc. (CHUY - Free Report) , Brinker International, Inc. EAT and Chipotle Mexican Grill, Inc. CMG. While Chuy’s Holdings currently sports a Zacks Rank #1 (Strong Buy), Brinker International and Chipotle Mexican Grill carry a Zacks Rank #2.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Chuy’s and Chipotle have impressive long-term earnings growth rate of 17.5% and 19.7%, respectively.

Brinker reported better-than-expected earnings in two of the trailing four quarters, with a beat of 1.4%, on average.

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