Good day, and thank you for being here. Welcome to Yum China's Third Quarter 2025 Earnings Conference Call. Please note that today’s conference is being recorded. I will now hand the call over to your first speaker today, Ms. Florence Lip. Please proceed.

Thank you, operator. Hello, everyone, and welcome to Yum China Third Quarter 2025 Earnings Conference Call. With me on the call are our CEO, Ms. Joey Wat; and our CFO, Mr. Adrian Ding. Before we begin, I need to remind everyone that our remarks and investor materials contain forward-looking statements. These are subject to future events and uncertainties, and actual results may differ materially. Please consider these forward-looking statements together with the cautionary statement in our earnings release and the risk factors included in our SEC filings. We'll also be talking about non-GAAP financial measures. We encourage you to review the comparable GAAP measures, along with the reconciliation of non-GAAP and GAAP measures provided in our earnings release, which is available on our Investor Relations website at ir.yumchina.com. You can also find both the webcast replay and a PowerPoint presentation on our IR website. Please note that all year-over-year growth rates discussed today exclude the impact of foreign currency, unless we mention otherwise. With that, I will now turn the call over to Joey Wat, CEO of Yum China. Joey?

Hello, everyone, and thank you for joining us. Building on our first half momentum, we achieved another solid quarter 3, accelerating store openings, driving growth in both same-store and system sales and expanding margins. Delivering growth across all three dimensions was no easy task, but we made it happen. System sales grew 4% year-over-year, outpacing the China restaurant industry. Same-store sales grew for the second consecutive quarter. Restaurant margin expanded to 17.3%. Together, these gains drove an 8% year-over-year increase in operating profit to $400 million, a quarter 3 record for adjusted operating profit. These results reflect the resilience of our established RGM strategy, which stands for resilience, growth, and moat and the steadfast execution of our teams in a dynamic market. Store expansion accelerated in quarter 3 with 536 net new stores. Our total store count exceeds 17,500 stores, keeping us on track to reach 20,000 stores by the end of 2026. As we promised in our last Investor Day, leveraging our portfolio of brands and flexible store formats, we are penetrating deeper into more cities while enhancing convenience in existing cities. By brand, KFC is as resilient as ever with 2% same-store sales growth, strong and steady restaurant margins, and a year-to-date record pace of new store openings. Pizza Hut accelerated store openings from the first half of 2025, surpassing the 4,000 store milestone while expanding restaurant margins year-over-year for the sixth consecutive quarter. Our dual focus on innovation and operational efficiency underpins our success, starting with our sales initiatives. We have delivered same-store transaction growth every quarter since 2023, 11 in a row. Notably, Pizza Hut has achieved 17% same-store transaction growth for three consecutive quarters. These results highlight the success of our pricing strategy, keeping KFC price points relatively steady and lowering them at Pizza Hut, amid improving restaurant margins. By making our food more accessible to more consumers, we attract more traffic. At the same time, we have transformed our operations for better efficiency. Great value and great prices must be accompanied by innovative, good-tasting food. Our focus spans three key areas: hero products, limited time offers, and new growth drivers. First, our hero products remain powerful growth drivers and inspire strong repeat purchases. At KFC, chicken wings have been one of our core categories, featuring our hero products, roasted wings, and hot wings. We extended this core category with the launch of the latest Crackling Golden Chicken Wings, extra crispy outside, juicy inside. This Chinese style wing is packed with a sweet and spicy garlic punch. During the promotion, sales of the new wings surged, matching the popularity of our roasted wings and showing great potential as a future growth engine. At Pizza Hut, pizzas account for over 40% of sales, with double-digit sales growth this quarter. We serve a broad range of pizzas, including pan and stuffed crust to satisfy diverse tastes. Most recently, our new hand-crafted thin-crust pizza became our best-selling crust within just 2 months of launch, now making up one in every three pizzas sold. Perfectly crispy with abundant toppings, it earned rave reviews and drove promising repeat purchases. Second is our LTOs, or limited time offers. We keep our core menu focused to ensure operational efficiency while introducing highly selective products for limited time periods to drive repeat visits. These offerings are not one-time wonders, but are designed for lasting appeal, in some cases, enduring for decades. KFC has developed several classic LTOs with a proven sales record that return periodically, such as Chicken Taco and Double Down each time we add fresh choices, like our Spicy Beef Wrap with crunchy lotus root, which became our best-selling beef wrap LTO in the last 4 years. Third, we are constantly exploring new growth drivers. New products such as KFC's whole chicken, along with Pizza Hut burgers are showing strong growth. We also see opportunities across our price ranges. Entry-level combos at KFC and entry-level pizzas at Pizza Hut achieved double-digit sales growth year-to-date. Taking it a step further, KFC is now exploring satisfying meals priced below RMB 20 to better reach customers with tighter budgets via select channels in some regions. These initiatives will also strengthen our relevance and appeal in lower-tier cities. With our menu innovation and superb supply chain, we deliver outstanding value and drive traffic to our store at solid margins. While great tasting food is fundamental, emotional value is just as important. We collaborate with leading IPs in animation, gaming, and sports on themed food, packaging, and gifts, attracting new and young customers. In quarter 3, delivery sales accounted for 51% of total sales, up from 40% in the same quarter last year. While there have been increased promotions on delivery platforms, as we discussed before, our core brands maintain a balanced approach, driving top line growth while protecting margins. KCOFFEE Cafes took the opportunity to increase exposure and drive additional traffic, and Lavazza achieved double-digit same-store sales growth in quarter 3. Let me now turn the call over to Adrian to discuss our results in detail. Afterwards, I will share additional color on our strategy.

Thank you, Joey. Let me now update key highlights by brand. Let me start with KFC. KFC opened a record of 402 net new stores in quarter 3, expanding its portfolio to 12,640 stores. System sales grew 5%. Same-store sales grew 2%, led by same-store transaction growth of 3%. Ticket average was CNY 38, down 1%, primarily due to the rapid growth of smaller orders. Our side-by-side modules grew nicely and delivered incremental sales and profits. KCOFFEE Cafes expanded to 1,800 locations, well ahead of our expectations. Daily cups sold per store increased 30% year-over-year in quarter 3, driven by strong menu innovations and platform promotions. We saw strong repeat purchases, particularly for our most popular beverages, Sparkling Americano series. Riding on strong summer demand, sales of this signature series grew over 50% quarter-on-quarter. Similar to KCOFFEE Cafes, KPRO also enjoys synergy with KFC by sharing its store space, in-store resources, and membership programs. Offering lighter options such as Energy Bowl and Super Food Smoothies, KPRO is designed to capture the fast-growing light meal market. It stands out with its excellent value for money and KFC's trusted quality standards. We have expanded KPRO to 100 locations. Initial results have been encouraging. We're continuing to refine the model and plan to scale it further, primarily across higher-tier cities. Our membership data indicates that a significant majority of our members have yet to try KCOFFEE and KPRO. As such, we see huge potential for growth. Now turning to Pizza Hut. Pizza Hut surpassed the 4,000 store milestone in quarter 3. Store openings accelerated with 298 net new stores year-to-date, keeping us on track for double-digit percentage growth in total store count for 2025. System sales growth sequentially improved from 2% in quarter 1 to 3% in quarter 2 and 4% in quarter 3. Same-store sales rose 1%, driven by 17% same-store transaction growth for the third consecutive quarter. Ticket average was CNY 70, down 13% year-over-year, in line with our strategic focus on the mass market segment. Alongside our investments in food and value-for-money offerings, we improved restaurant margin by 60 basis points by streamlining operations and enhancing supply chain efficiency. Pizza Hut WOW has expanded to 250 stores, adding nearly 50 stores year-to-date with its low CapEx model and streamlined operations. These openings have taken us into 40 new cities with no prior Pizza Hut presence. We'll continue to ramp up new WOW store openings, primarily focusing on lower-tier cities. Let me now go through our quarter 3 P&L. System sales grew 4% year-over-year and same-store sales grew 1%, both in line with our targets. Our restaurant margin was 17.3%, 30 basis points higher year-over-year. Savings in cost of sales and occupancy and other costs offset increases in cost of labor. Cost of sales was 31.3%, 40 basis points lower year-over-year. Our continued efforts to optimize supply chain efficiency and favorable commodity prices contributed to the improvement. This enabled us to pass some of the savings to customers, offering great value for money. Cost of labor was 26.2%, 110 basis points higher year-over-year. While non-rider costs as a percentage of sales remained relatively stable year-over-year, the higher delivery mix led to higher rider costs overall. We continue to optimize store operations to partially offset wage inflation and the impact of the higher delivery mix. Occupancy and other was 25.2%, 100 basis points lower year-over-year as a result of better rent and store CapEx optimizations. G&A expenses were 4.5% of revenue, even with the prior year period. Our OP margin was 12.5%, 40 basis points higher year-over-year, primarily driven by improved restaurant margin. Operating profit was $400 million, growing 8% year-over-year. Core OP also grew 8% year-over-year. Effective tax rate was 27.6%, 30 basis points higher year-over-year. Net income was $282 million, 5% lower year-over-year. Excluding our investment in Meituan, net income grew 7% year-over-year. Our investment in Meituan had a negative impact of $8 million in quarter 3 compared to a positive impact of $26 million in quarter 3 last year. As a reminder, we recognized $8 million less in interest income in quarter 3 this year due to a lower cash balance, resulting from the cash we returned to shareholders and lower interest rates. Diluted EPS was $0.76, 1% lower year-over-year or up 11% year-over-year, excluding the impact from our Meituan investment. Let's now move on to capital returns to shareholders. Year-to-date, we returned a total of $950 million to shareholders, including $682 million in share repurchases and $268 million in dividends. In September, we announced an additional $270 million share repurchase program on top of the $866 million previously announced for 2025. With a quarterly dividend of $0.24 per share, we are on track to return a total of approximately $1.5 billion to shareholders in 2025. From 2024 to 2026, we are committed to returning approximately $1.5 billion each year to shareholders or annually around 8% to 9% of our current market cap. Our cash position remains healthy with $2.7 billion in net cash as of the end of quarter 3. Turning to our outlook. We accelerated store openings in quarter 3, bringing our year-to-date net new store count to 1,119. This keeps us on track for 1,600 to 1,800 net new stores in 2025. Franchise mix of net new stores year-to-date was 41% for KFC and 27% for Pizza Hut. We expect similar ratios for the full year, in line with our target ranges of 40% to 50% for KFC and 20% to 30% for Pizza Hut. Our 2025 CapEx target of $600 million to $700 million remains unchanged. Per store CapEx for new openings continue to decrease. KFC per store CapEx has decreased from CNY 1.5 million in 2024 to CNY 1.3 million to CNY 1.4 million currently, while Pizza Hut has fallen from CNY 1.2 million in 2024 to CNY 1.0 million to CNY 1.1 million. For quarter 4, with solid new store openings, we remain on track for mid-single-digit system sales growth. Predicting same-store sales growth is always challenging, but our goal is to keep quarter 4 same-store sales growth at similar levels as quarter 3. We're also working hard toward achieving our 12th consecutive quarter of positive same-store transaction growth. On margins, we continue to expect core OP margin for the second half to be slightly higher year-over-year, with quarter 4 broadly in line with last year due to tougher year-over-year comparisons. Last year's base benefited from Project Fresh Eye and Red Eye, while higher rider costs from a larger delivery mix remain a headwind. We'll focus on enhancing efficiency to mitigate these headwinds. As a reminder, quarter 4 is traditionally our low season with smaller sales and profits. Overall, we remain committed to meeting our full year target of mid-single-digit system sales growth and moderately improved margins.

Thank you, Adrian. Let me share a few thoughts on our strategy. On the front end, our multi-brand portfolio, diverse modules, and offerings cater to a wide range of customer segments and occasions. Through continuous innovation, we unlock new opportunities that drive incremental sales. On the back end, we are fostering even greater synergies. We expect more sharing, centralization, and consolidation of resources in and across stores, regions, and even brands. This will enable deeper market penetration and faster, more efficient expansion. For example, Mega RGMs manage multiple stores and support rapid store portfolio expansion. Side-by-side modules share KFC's in-store resources and membership programs to drive additional sales and profits with lighter investment and operating costs. We see tremendous opportunity ahead of us as we leverage synergies to grow our businesses while protecting margins. We are excited about our growth potential and look forward to sharing more at our Investor Day. Before we turn to Q&A, let me recap the three key takeaways from today. First, our dual focus on innovation and operational efficiency enables us to deliver yet another quarter of solid results. We accelerated store openings, recorded 1% same-store sales growth, and expanded margins, delivering growth across all three dimensions. Second, we grew our businesses by leveraging synergies while protecting margins. KFC's KCOFFEE Cafes expansion is ahead of plan, and both KPRO and Pizza Hut WOW are building encouraging momentum. And lastly, with our established RGM strategy, resilience, growth, and moat, and our team's strong execution, we are on track to meet our 2025 targets while setting the stage for future growth. With that, I'll pass it back to Florence for closing remarks.

Thanks, Joey. Now let me share a quick preview of our upcoming Investor Day, which will be held in Shenzhen on November 17. Joey, Adrian, along with our leadership team, will share updates on our RGM strategy and 3-year growth algorithm. A live webcast of the presentations will be available on our IR website. For those visiting in person, we planned visits to a range of store formats and locations. Investors will be able to gain firsthand insights into the local market, see our operations in action, as well as sample our signature and innovative menu items. With that, we will open the call for questions. In order to give more people the chance to ask questions, please limit your questions to one at a time. Operator, please start the Q&A.

The first question comes from the line of Michelle Cheng from Goldman Sachs.

Joey and Adrian, congrats again for this very resilient result. We understand that the environment has been very challenging. So my question is about the delivery. So you have been mentioning that you will be disciplined in managing this delivery platform, subsidy campaign. But can you share with us more on your observation on the subsidy impact on the company and the whole market in the near term and in long term? Particularly, I think there is another round of concerns on this deflation. So how should we think about the pricing trend and also the competitive landscape impact? So that's my question. And actually, I just saw a news coming out regarding Yum! Brands; they mentioned something about Pizza Hut. So I'm wondering whether Joey can also comment on that. It looks like there's a review of the strategic options for Pizza Hut. So wondering whether there's any impact on the Yum China Pizza Hut business as well.

Thank you, Michelle. I have three comments regarding the delivery and subsidies, after which Adrian can address the Pizza Hut question. First, we've noticed a significant decrease in subsidies from delivery platforms for coffee and tea, while there has only been a slight decrease in quick service restaurants. Second, we still anticipate that the impact on our business will be limited, as we remain committed to our strategic focus and balanced approach with our core brands. This involves driving sales growth while simultaneously protecting our margins. We aim to capture sales while ensuring the long-term positioning of our brand. Third, looking ahead, we believe that, similar to our experience in 2017 during a comparable situation, subsidies will eventually return to normal levels. Therefore, it is crucial for us as a company and as a brand to maintain discipline in focusing on menu innovation, quality, customer service, and preserving price perception, especially for an established brand like ours. These fundamentals are essential for our long-term competitiveness. Thank you, Michelle. Adrian?

Sure, Joey. Michelle, on your question regarding Pizza Hut and Yum! Brands' announcement earlier today, we are aware of the development, and we understand Yum! Brands will be initiating a formal review of a range of strategic options. Obviously, Yum China and Yum! Brands are two independent companies. So we're not in a position to comment on their process of strategic review. But regardless of the outcome, we are confident in the strength of Pizza Hut brand in China, and our ongoing operations and significant growth potential of Pizza Hut here in China remain unchanged. Also, I would like to say that Yum! Brands and ourselves have been close and long-time partners, and it will continue to be the case. And I guess part of the question is the impact of Yum China, right? I'm not sure if you are implying whether we will be participating in some way or form into this strategic review process. Our policy is not to comment on any specific transactions. With that said, we have always taken a prudent approach, Michelle, as you appreciate, to evaluate potential investment opportunities, and we'll continue to do so. We set a very high bar. We'll conduct M&A only when the transaction is strategically sound and expected to create great value for our shareholders. Additionally, all M&A matters are subject to rigorous evaluation and discussions with our Board. Thank you, Michelle.

The next question comes from Brian Bittner from Oppenheimer & Co.

Can you give us a refreshed overview of what you are seeing from a macro perspective as it relates to the restaurant industry in China and consumer spending by the China consumer? It seems like visibility is improving relative to past quarters and years, maybe the opposite of what you're seeing with the U.S. consumer. Any color there? And I think, Adrian, you said that you expect 4Q same-store sales to look similar to 3Q. Just want to confirm you said that. Any additional color on that dynamic would be helpful.

Thank you, Brian. In terms of the macro environment, as we've noted in the third quarter and into early October, the performance has been good and aligned with expectations. Traffic has been strong as people are traveling, especially during the holiday period. However, consumers remain cautious about value. Looking at the performance across regions, we see that lower-tier cities are performing slightly better due to increased domestic travel, but consumers are still focused on getting value. We understand that it's not just about competitive pricing; it's essential to price appropriately, offer good value for money, and ensure high-quality food and emotional appeal. We're committed to delivering innovative products and exploring new business models. Our primary goal continues to be increasing same-store transaction growth. While same-store sales growth is also positive, particularly for KFC, which saw a 2% increase, we will maintain our focus on operational efficiency and innovation. Thank you, Brian.

Our next question comes from Chen Luo of Bank of America.

Joey and Adrian, congrats again on the solid Q3 results. My question is, again, on our expansion strategy to focus on smaller formats and franchise stores. So if we do the math, approximately 10% expansion in Q3 lead to around 4% sales growth. So can we say that this kind of 40% ratio can be maintained in the coming few quarters as we continue to pursue a shift to the smaller format? And meanwhile, if you look at the franchise stores, I understand that we try to improve the economics to P&L in the future. But where are we now? Is there any progress at the moment?

Thank you, Lou Chen. First, regarding the system sales growth being around 40% of the store count growth, this may not hold true going forward due to various factors. As I mentioned earlier, both this quarter and the last, we are strategically optimizing our store portfolio, which involves closing some larger stores with higher sales while opening smaller ones with slightly lower sales. Additionally, new store sales tend to be at a discount compared to mature stores, and the ratio for new stores in their initial year is approximately 50% to 60%. Naturally, this will improve in the first three years. So, the strategic optimization is the first factor to consider; if we continue with a net new store growth of 10% without this factor, system sales growth would likely be higher. The second factor is the timing of store openings and closures, which affects total operating weeks. For this quarter, the timing of openings, especially for KFC, has shifted towards September, the third month of the quarter, which impacts store weeks and consequently system sales growth. With Pizza Hut, we are also catching up with store openings, which are more evenly distributed throughout the quarter, resulting in sequential improvement in system sales despite similar new store openings. Lastly, there are minor rounding differences to keep in mind. In summary, the relationship between system sales growth and new store growth percentages will change over time. Regarding your question about future system sales growth, we will provide more details in our upcoming Investor Day in two weeks, so stay tuned for that. As for the second part of your question on franchise economics, we have made progress in improving our franchise business's economics. Currently, the operating margin for our equity business is about 10% to 11%, while for the franchise business, it is around 10% without considering G&A. After accounting for G&A, the operating margin for franchises falls into the high single digits. We've made some progress this quarter, including a slight revision in our pricing mechanism to share savings from our efficiency projects with franchisees. While we expect to gain more savings from these projects, we aim to align the operating margin for franchises with that of the equity business in the mid- to long term. In the short term, there should not be any margin dilution from our franchise initiatives since the mix is small and margins are already similar. In the longer run, we anticipate improved return on invested capital for the franchise business due to efficiency gains. Thank you, Lou Chen.

Our next question comes from Lillian Lou of Morgan Stanley.

My question is about delivery, focusing on the short term. I would like to understand the delivery order mix from food aggregators compared to our own platform, especially since it seems that membership sales have decreased both sequentially and year-over-year this quarter. Are we currently seeing an increase in orders from aggregators due to the subsidy program? What initiatives are we implementing to encourage customers to order more directly through our system? Additionally, I would like to know if there are any cost-saving measures planned regarding rider expenses in the future.

Thank you, Lillian. First, the contribution from membership sales to overall sales has slightly declined this quarter. This is largely a mechanical outcome since we exclude sales from members who use aggregators when calculating membership contributions. We are aware of members who spend through aggregators, but those figures are not included. Therefore, when the mix of aggregator sales increases, our reported membership contribution decreases slightly due to this method of calculation. However, if we include members who spend on aggregators, the adjusted membership sales contribution remains stable both quarter-over-quarter and year-over-year. Regarding your second question about the rising delivery mix and rider costs, we are indeed focused on reducing rider costs per order, which have been decreasing. However, with the increase in the delivery mix, we see a greater overall impact that puts pressure on our cost of labor. We did warn the market back in February, even before the delivery-aggregator competition intensified, about facing challenges related to delivery costs. We are optimizing delivery efficiency and also working on improving operational efficiency in our non-delivery areas through streamlining, automation, and centralization. This should help counteract both wage inflation and the impact of the rising delivery mix. Overall, we continue to face challenges with costs, which has been consistent since we began providing guidance in February. We are committed to improving the unit economics and achieving moderate improvements in operating margins for Yum China this year. As for the mid- to long-term outlook for both brands, we anticipate stable margins for KFC and potential margin improvements for Pizza Hut, while considering the varying scenarios related to delivery aggregator subsidies and the delivery mix. I hope this answers your question, Lillian.

I would like to make two brief points, Lillian. Adrian mentioned the short-term technical measures we are implementing to safeguard our profit and loss. Additionally, we are also focused on driving innovation and enhancing operational efficiency over a longer timeframe to protect our profit and loss. For instance, we are continuing to accelerate initiatives like KPRO and KCOFFEE. By addressing the front-end segmentation of sales along with the back-end consolidation of operating costs, we can manage our cost structure more holistically and protect it in the long run. Thank you, Lillian.

Our next question comes from Sijie Lin from CICC.

So I have one question. We see more and more attempts at expanding new store formats and new categories. For example, besides KCOFFEE and Pizza Hut WOW, there are also KPRO, Fried Chicken Brothers, et cetera. So trying to learn more about our strategic planning and methodologies for these. So whether we have identified a few promising categories and concentrate our efforts, or we just try out various options, and they may work as a total? And also, what are the key considerations when we decide to develop a new model or new category? Maybe like, some competitors have proved it's a promising category, or it can create synergy with our other business?

I believe we will have a comprehensive discussion on this topic during Investor Day. It is a priority for us. In the meantime, I want to highlight a few points. We are concentrating on growth initiatives, specifically regarding same-store sales and system sales. KPRO is one example, and KCOFFEE is another. In fact, KCOFFEE is ahead of schedule. We initially aimed for 1,500 to 1,600 locations, and we are already there. We will keep pursuing it where possible. KCOFFEE is well-known, while KPRO is a concept we developed nine years ago, and this year, we are seeing its acceleration. The strategy involves targeting customer segments and occasions. On the operational side, we optimize our equipment, resources, and labor to enhance efficiency, which is crucial for growing new businesses and generating additional sales and profits. We are indeed focusing on fried chicken, but KPRO offers customers an alternative. A significant number of KPRO customers are also KFC customers, looking for options during the week, which we provide. It is a niche category with trusted food safety. We will continue to explore this space, understanding that the success rate for new categories or concepts is not guaranteed. Therefore, we will test and determine how new models work. KFC fried chicken and Brothers are part of those trials, and it is still very early. We will keep experimenting with various ideas. Thank you.

Our next question comes from Xiaopo Wei from Citi.

I have a question on KFC business. If we look at the 3Q results, 2% same-store sales growth with 5% system sales growth, very impressive. But however, if we look at the restaurant profit growth, which was at 5% and OP growth was only at 6%, we didn't see a lot of positive operating leverage. Shall we say that the delivery-driven strong growth will not have a lot of positive operating leverage in your business? If that is the case, will you work on something to try to improve that part of the business to expand the OP margin of KFC looking forward?

Thank you, Xiaopo. KFC is a resilient business. As we indicated in the previous quarter's earnings release, we expect the second half of KFC's restaurant margin to remain stable compared to last year. This aligns with the actual results we are seeing this quarter. A key principle we have emphasized since 2019 is our expectation that KFC's restaurant margin will remain stable in the mid- to long term, as it is currently at a healthy level above 17%, which is among the highest in the restaurant industry. We plan to share any margin gains we achieve with various partners, including suppliers, landlords, frontline staff, and retain a small portion for our group, which we will also share with shareholders. Tactically, in the third quarter, we observed a significant increase in our delivery mix, rising to 51% from around 40% last year. This shift in the mix has created a considerable headwind in costs, as we warned the market. The cost of labor for KFC increased by approximately 160 basis points as a result of the delivery mix, while the group experienced a change of 1 to 10 basis points. We successfully offset this increase through benefits in cost of sales and operating expenses. Nevertheless, our long-term philosophy remains focused on keeping KFC's restaurant margin stable at a healthy level. Thank you, Xiaopo.

Our next question comes from Christine Peng from UBS. Christine, your line is open. You may unmute locally.

Sorry, I was muted. So I have a quick question regarding the same-store sales growth of KFC. So obviously, 2% same-store sales growth was upside surprise given Adrian previously mentioned about 0% to 1% same-store sales growth. So I was just wondering how sustainable you think this level of same-store sales will be continued going forward? The reason I ask is because, obviously, in the third quarter, there are some benefits from the subsidy provided by delivery platform. On the other hand, we also noticed that your management has been very diligent to launch new formats such as the tea, coffee, KPRO. So I was just wondering whether management can provide us some colors in terms of the contributions from delivery subsidy and the new formats launching to this 2% same-store sales growth. In addition to that, if you could talk a bit about the KPRO economics just briefly, I think that will be very helpful for us to understand the economic benefits of this new format.

Thank you, Christine. First, the 2% same-store sales growth for KFC is slightly higher than we expected, which is also the case for KCOFFEE Cafes. We initially anticipated around 1,700 locations for KCOFFEE, but we've already reached 1,800 in the third quarter. These results are encouraging, and we're pleased to be pleasantly surprised. This growth is above our target range of 0% to 1%. Predicting same-store sales growth is always challenging due to the dynamic market environment and rational consumer behavior. However, as mentioned earlier, we are working diligently to maintain the same-store sales growth in the fourth quarter at levels comparable to the third quarter, aiming for 12 consecutive quarters of growth in transactions at existing stores. While transaction growth is more manageable, overall same-store sales growth will depend on various factors, including competition and macroeconomic conditions. Therefore, I cannot provide specific guidance on the sustainability of this growth level. Regarding your second question about KPRO economics, similar to KCOFFEE Cafes, KPRO serves as a side module to our KFC restaurants, contributing additional sales and profits. KPRO is expected to generate more incremental sales than KCOFFEE Cafes because it is a restaurant concept. However, we have not shared exact economic details for KPRO yet, as it is still in its early stages; we currently have just over 100 modules. The initial progress has been promising, and we will provide more information on KPRO's economic potential and growth, as well as other initiatives, when we are ready. I hope this answers your question, Christine.

I'll provide more details on KPRO, Christine. With KPRO, we leverage the KFC brand's synergy. We utilize KFC store space, the membership program, the kitchen, and the COL. This is crucial because the additional investment required is significantly less than that of a standalone store, which you may know about from KCOFFEE. Due to the substantial synergies we are pursuing, the concept is generating both incremental sales and profit. However, as you are aware from our history, whenever we introduce something new, whether it's a concept or product, we prioritize sales first and profit later, step by step. Thank you.

In the interest of time, we'll now take the last question from Linda Huang from Macquarie.

My question is regarding for the sales. Because we are pleased to see that in the third quarter, right, our sales up 4% faster than industry. But looking ahead, do you think that we have a chance to accelerate the growth to like high single digit? And if we can achieve this growth rate, will it come from the macro factor? Or is there any company-specific strategy that we can buck the trend to go faster? So that's my simple question.

Thank you, Linda. Well, actually, you asked a question that we will share exactly the same topic in the Investor Day in a couple of weeks' time. So I'll try to keep some secret there to the Investor Day in 2 weeks. But overall speaking, as you correctly point out, from a company-specific perspective, we are ready in terms of lots of fundamental improvement, a lot of new modules are ready, new initiatives are being tested. The innovation is spread across all different parts of the business, name it, right, menu innovation, store model innovation, emotional value, the new emotional value, exciting ones that also involves innovation, et cetera, et cetera. So I would say we're very well positioned to capture future opportunities. And obviously, we will not be settled with a mid-single-digit top-line growth, system sales growth. But as to the exact growth algorithm over the next 3 years, that will be some topic we'll share in 2 weeks' time. Yes. So please stay tuned. Thank you, Linda.

Linda, I think I just have one quick comment here is, although KPRO is really exciting because it's new, but the biggest growth driver will still be from the core brand, ourselves. For example, KFC, the small-town mini, the different modules and then Pizza Hut, the bowls are doing very well to enter new cities, which we are very excited about. And then the hero product, in the prepared remarks, we talked about hero product. It's incredibly exciting to, again, focus on "surprise, surprise, fried chicken" for KFC and then for Pizza Hut, "surprise, surprise, the new thin dough pizza." So we'll go through the building blocks or the key modules of these key drivers of the business in the Investor Day. So we look forward to it.

Thanks, Joey, Adrian, and also thanks, Linda. This concludes our Q&A session. Thank you for joining the call today.

Yes. That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

Thank you.

Thank you.