Good day and thank you for standing by. Welcome to the Yum China First Quarter 2026 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question please press star one and one again please be advised today's conference is being recorded i'd now like to hand the conference over to your first speaker today senior ir director florence lip please go ahead thank you operator hello everyone and welcome to yum china's first quarter 2026 earnings conference call With me on the call are our CEO, Ms. Joey Watt, and our CFO, Mr. Adrian Ding.

Before we begin, I will 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 refer these forward-looking statements together with the cautionary statement in our earnings release and the risk factors included in our SEC filing. 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.yamchina.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'll now turn the call over to Joey Watt, CEO of Yum China. Hello, everyone, and thank you for joining us. Once again, we delivered solid results in a dynamic environment, reflecting the successful execution of our RGM 3.0 strategy, which balances resilience, growth, and moat. In quarter one, revenue grew 10 percent and operating profit increased 12 percent in reporting currency, supported by a positive foreign exchange impact. We opened 636 net new stores, more than one-third of our full-year target, and ahead of schedule. Even as we accelerated store expansion to capture market opportunities, we maintained a dual focus on same-store sales growth and system sales growth. Same-store sales growth was slightly positive, though rounded to zero. Same-store transaction grew for the 13th consecutive quarter. Excluding foreign exchange impact, system sales grew 4%, operating profits increased 6%, and operating profit margins expanded at 20 basis points year over year. This marks the eighth consecutive quarter in which we delivered growth across all three metrics at the same time. By brand, KFC remained resilient, same-store sales grew 1%, the fourth consecutive quarter of growth. System sales increased by 5%, and restaurant margins remained very healthy at 19.1%. Pizza Hut continued to grow in scale and profitability delivering 18% operating profit growth on top of 27% growth in quarter one last year both in reporting currency same store transactions grew for the 13 consecutive quarter while restaurant margins improved 60 basis points year-over-year to 15%. I would like to say a big thank you to our team for delivering solid results in this fast-changing environment. We maintain a strong dual focus on innovation and operational efficiency. Let me share a few updates on our key initiatives and And then I will hand it over to Adrian to go through our results in more detail. It always begins with good food and great value. During Chinese New Year, we offered a wide range of options to cater to both group gatherings and solo diners. At KFC, in addition to our signature golden buckets, we launched classic limited time offers LTOs such as shrimp burger, beef wrap, and wind bucket to drive additional traffic. Building on last year's hugely successful LTO campaign crackling golden chicken wings became the first new permanent products we introduced during CMY to our menu. KFC's innovative side-by-side modules are scaling rapidly, delivering meaningful incremental sales and profit. K-Coffee cafes are now in over 2,600 locations and K-Pro in more than 280 locations. K Coffee Cafe generated around mid-single-digit sales uplift and KPro around 20% to their parent KFC stores in quarter one. Our consumer insights help us identify consumer needs and our front-end segmentation and back-end consolidation approach help us meet these needs effectively by sharing resources with the parent stores these modules cross-sell existing members and require a far lower investment and operating courses making them attractive business models Adrian will provide more updates on these two modules later in the call at Pizza Hut alongside our classic super supreme campaign for Chinese New Year we collaborated with popular IPs like Gunder and Butter Bear and launched our signature all-you-can-eat campaign in quarter one Pizza Hut accelerated expansion with 207 net new stores that's nearly half of last year's full year net new openings over 100 new stores used the wild format, most of them in new cities. Its lower CAPES model and simpler operations, supported by franchisee model, open up opportunities in lower tier cities. We also continued to fine-tune the WOW model and enhance the manual, adding signature items from Pizza Hut's main menu while keeping its most popular value items to strengthen both relevance and appeal. Let me now turn the call over to Adrian.

Thank you, Joey. Let me update key highlights by brand. Starting with KFC. In quarter one, KFC system sales grew 5%. Same-store sales increased 1%, marking its fourth consecutive quarter of growth. Same-sort transactions also grew 1%, while ticket average was down 1%. The rapid growth of smaller orders was largely offset by the increased delivery mix, which carries a relatively higher ticket average. KFC's breakthrough side-by-side modules continue their strong momentum and drive incremental sales and profit to their parent stores. We added around 400 K-Coffee cafes in quarter one, bringing the total to over 2,600 locations across all city tiers. With broader coverage and rising daily cups sold per store, K-Coffee cafe sales more than doubled year-over-year. We expect K-Coffee cafe to keep growing rapidly to unlock further potential and reached 5,000 locations by year-end 2027, two years ahead of our original target shared at our last year's investor day. Paypro also gained momentum, reaching 280 locations, up from 200 at the end of 2025. While primarily focused on Tier 1 and Tier 2 cities, we're expanding into select Tier 3 cities as well, especially in eastern and southern China, where the demand for light news is stronger. Kpro is performing well and showing margin improvement, driven by agile module iteration, including manual innovation and reduced investment requirements. With that, we're raising our Kpro target to 600 locations by year-end, an increase of 200 compared to our plan shared earlier this year. Now, moving on to Pizza Hut. In quarter one, system sales grew 4% year-over-year, and same-store sales were 99% of the prior year period's level. This year's CNY took place considerably later than usual. Pizza Hut, as a casual dining concept, saw a modest impact as dining and gathering patterns shifted around the Chinese New Year holiday. In March, we brought back our popular All You Can Eat campaign for a limited time. Now, in its fifth year, this campaign has become a signature, attracting consumers to try new dishes, effectively driving traffic, and broadening appeal. Sinsor transactions grew 5% in quarter one, marking its 13th concerted quarter of growth. Ticket average was down 5% year over year. in line with our mass market strategy and driven mainly by better value for money offerings. Pizza Hut's TA is moving closer to our long-term target range of 60 to 70 yuan as shared of last year's investor day. Even with the lower TA, Pizza Hut restaurant margin expanded by 60 basis points year over year to 15.0%. Oki margin also increased by 100 basis points. Efficiency continued to improve at Pizza Hut, as we streamlined store operations, centralized processes, and advanced automation, supported by our strong food innovation, supply chain, and digital capabilities. Now moving on to store opening. We accelerated store openings in Q1 to record levels for Yum China, KFC, and Pizza Hut. With 636 manual stores in the quarter, we are on track to open more than 1,900 manual stores for the full year and to surpass 20,000 total stores in 2026. Franchisees contributed 42% of KFC and Pizza Hut's manual stores in Quarter 1, helping us capture incremental opportunities in lower-tier cities, remote areas, and strategic locations. Our franchise portfolio exceeded 2,500 stores at the end of the quarter one, up from around 1,800 a year ago. We expect to continue driving store network growth with capital efficiency and improving our ROIC over time. Our flexible store models continue to support franchise growth. Pizza Hut's wild store model is making good progress. Store counts doubled year-over-year to around 390. In quarter one, restaurant margins of new equity wild stores were already in line with the Pizza Hut's main model. In addition to standard wild stores, we're also opening wild stores side-by-side with KFC, which we refer to as the Gemini model. Nearly 80 wow openings in Quarter 1 with Gemini stores, mostly in new lower tier cities and operated by franchisees. With rising car ownership and the expansion of highway networks, we're leveraging franchisees' resources to tap into the growing on-the-road demand. We have already signed franchise agreements with more than a dozen provincial and municipal highway operators, to open stores at their highway service stations. In just over a year, we added nearly 100 stores and are accelerating the pace this year. We are also meeting new customer needs through innovative solutions. Traditionally, drive-throughs require dedicated car lanes. We expand on this by offering car-side pickup at locations without such length, but with pull-over areas, where our crew brings orders straight to consumers' cars. This approach significantly reduces cap expenditure requirements and gives us the greater flexibility in driving takeaway sales. Today, more than 7,000 KFC stores offer either the traditional drive-thru or car-side pickup services, up from around 2,000 a year ago. While still early in building awareness and habits, in quarter one, nearly one-third of drive-thru customers made repeat purchases, showing strong potential and stickiness. We're partnering with multiple car companies, including BYD, to enable in-car ordering. And select stores will have fast charging stations in stores nearby to offer even greater convenience. Let me now go through our Q1 P&L. System sales grew 4% year-over-year. Same-store sales grew slightly year-over-year, but rounded down to 100% of prior year levels. Our performance in January and February was broadly in line with our expectations. March came in slightly softer than expected, as it fell between the Chinese New Year holidays and the additional spring break in several provinces and compared against last year's strong IP campaigns. A restaurant margin was 18.2%, 40 basis points lower year over year. The decrease was primarily due to increased rider costs from higher delivery mix, partially offset by improved operational efficiency. Cost of sales was 31.6%, 40 basis points higher year over year, mainly due to strong value for money offerings. The tailwind from favorable commodity prices is also less than before. Cost of labor was 26.7%, 100 basis points higher year-over-year. Rider costs increased year-over-year, driven by the strong growth in delivery sales mix, which went up from 42% last year to 54% this year. Rider costs now account for close to 30% of our cost of labor. The margin impact was 190 basis points, and we mitigate around half of that through enhanced store operations. Occupancy and other was 23.5%, 100 basis points lower year-over-year, mainly due to better rent and other initiatives to improve operational efficiency. Our OP margin was 13.7%, 20 basis points higher year-over-year, achieving the eighth consecutive quarter of OP margin expansion. Savings and G&A expenses helped improve OP margins. Operating profit was $447 million, a first quarter record growing 6% year-over-year. year, net income was $309 million flat year-over-year. Excluding our investment in Meituan, net income grew 4% year-over-year. Our investment in Meituan had a negative impact of $9 million in Q1 compared to a positive impact of $2 million in Q1 last year. As a reminder, we recognize $10 million less in interest income in Q1 this year due to a lower cash balance, resulting from the cash we return to shareholders, and lower interest rates. Diluted EPS was $0.87, 7% higher year-over-year, or up 11% year-over-year, excluding our investment in May 20. Now moving on to our 2026 outlook, starting with the second quarter. On sales, we are working hard to deliver positive same-store sales growth and the 14th consecutive quarter of positive same-store transaction growth. March, sitting between Chinese New Year and the extra school spring break in April, was slightly softer. However, April benefited from the additional traffic. Taken together, March and April were broadly in line with our expectations, giving us confidence that same-store sales growth will sequentially improve for Yum China, KFC, and Pizza Hut in Q2. On margins, rider costs remain the biggest headwind. Although delivery platform subsidies have moderated slightly, we expect delivery sales to continue growing which means rider cost pressure will persist that said the tough year over year comparison we face in quarter one restaurant margin will ease slightly in quarter two at this point in time we expect the situation in the middle east to have limited impact on the cost of sales this year we have already secured the majority of this year's procurement contracts. We'll continue to monitor the situation closely and manage our procurement and logistics nimbly. We'll maintain our dual focus on driving things for sales growth and system sales growth while keeping our operations efficient. All in all, we strive to maintain OPA margin roughly in line with the prior year period in quarter two. As for second half, we expect We expect sequential improvement in year-over-year margin comparisons versus the first half. With higher delivery sales mix last year, the incremental rider cost pressure should Our initiatives to optimize operational efficiency and store costs, including rent, labor productivity, capital expenditure, are also expected to support margin expansion. We are confident in meeting the full-year targets for 2026, which are consistent with the ranges we shared at our investor day last year and in February. These include same-store sales index of 100 to 102, mid-to-high single-digit system sales growth, high single-digit operating profit growth, double-digit EPS growth, a slight improvement in restaurant margin and OP margin for Yum China. Additionally, we remain on track to reach 20,000 stores by year-end. In terms of capital returns to shareholders, in quarter one, we returned $316 million with with $214 million in share repurchases and $102 million in quarterly cash dividends. We're on track to return $1.5 billion to shareholders for the full year 2026, around 9% of our current market cap. Of the $1.5 billion, we expect around $400 million to be distributed as dividends and 1.1 billion dollars to be allocated to share repurchases through a mix of systematic and discretionary buybacks. From 2027, we plan to return approximately 100% of our annual free cash flow after subsidiary dividend payments to noncontrollable interest.

This is expected to be an average of 900 million dollars to one billion plus dollars in 2027 and 2028 and exceed one billion dollars in 2028 and onward with that let me hand it back to joey for her closing remarks thanks adrian let's take a moment to highlight our key growth drivers in quarter two and beyond at kfc our six hero products provide a solid foundation accounting for around 30 percent of sales and are purchased by about 80 percent of our ethic members. We keep innovating to drive repeat purchases. Whole chicken, introduced in 2021, is a great option for at-home consumption and has gained popularity quickly. Sales nearly tripled since 2022, surpassing 2 billion yuan in 2025. In April, we add aromatic paper-wrapped roasted chicken to the permanent menu after a successful LTO in quarter four last year. This new offering is incredibly juicy and its simple cooking process ensures the ad variety does not increase kitchen complexity Pizza Hut also continued to innovate to meet evolving consumer needs in our latest spring menu launched last week we introduced over 30 new dishes about one-third of our entire menu. With this menu revamped, we add new platforms tailored for die-in sharing and enriched our protein offerings. For example, beef and chicken fajita and sashuka, a poached egg in spiced tomato sauce. In May, we are excited to upgrade our hand-tossed pizza with multi-grain crust and colorful protein and vegetable toppings . These innovations not only taste great but are fun and highly Instagram-worthy, enhancing the casual dining experience. Beyond serving our existing customers better, we are broadening our addressable market by identifying underserved customers. For example, we now have offerings for customers on tighter budgets. Through highly selective delivery channels, we offer hardy meals at very affordable prices. KFC is Chinese bun stuffed with麻辣 chicken, 香辣粉珍鸡肉饱. This bun weighs more than half a pound, is inspired by a popular Sichuan dish and is the winner of our internal nationwide food ideation competition. And Pizza Hut offers Roman-style spicy pasta with sausage. Both food gains instant popularity. Since our investor day in November last year, we continue to be encouraged by the early signs of improving consumer sentiment and more rational competition among delivery platforms. These are positive developments that we believe will benefit our industry over the mid to long term. We are well positioned for this, supported by our strong brand equity, food that customers love, and a solid set of growth initiatives. We are confident in achieving our 2026 full-year targets and will continue to drive profitable growth and create sustainable value for our shareholders. Now let me pass it back to Forrest.

Thanks, Joey. Now 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.

Thank you. If you would like to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. And to withdraw your question, please press star one and one again. Please stand by while we compile the Q&A roster. Thank you. We will take our first question. This is from Michelle Cheng from Goldman Sachs. Please go ahead.

Hi Joy, Adrian, Florence. Thanks for taking my question. I would like to explore the delivery business a little bit more. Joey and Adrian, you earlier mentioned a bit on this delivery impact, but can you still elaborate a little bit more for the past few quarters, given still more promotional environment, the positive impact from same-store sales growth versus the negative impact from the competition and the margins? And do we see any changes in the trend the past one to two months? And looking ahead, what we expected, the subsidies will be more normalized, and how should we think about the financial impact and what will be our strategies, especially driving more takeaway and the in-store consumption. Thank you. Thank you, Michelle. I would like to make a few points about your question on the delivery topic. We see early signs of more rational delivery platform competition recently, for sure, and we welcome the development and believe that it will benefit our industry over time. And specifically, the reduction in subsidies right now is more pronounced for smaller orders, but only a slight decrease in QSL. so we we see platforms increasingly focusing on higher TA orders which is good for our business relative to the dream business as opposed if we have been very consistent in the past last year and now that we always maintain a discipline approach we balance sales growth margin protection and brain integrity so I believe that we are well positioned for the rationalization of the delivery subsidies and you know going forward other that in addition to the discipline approach we always look at our operational growth supported by strong brand equity for innovation great value and many other levers and in my you know prepare remarks I talk about the Pizza Hut new new food like for heaters should the KFC get the cake of the Cape roll roll mentioned by Adrian and also the class I picked up so all these are our focus and we we continue

to maintain a discipline approach thank you Michelle yeah and in addition to that I guess as to a part second part of the question regarding financial impact of the more rationalization of delivery subsidy as Joey mentioned you know we have been very disciplined in taking the delivery subsidy you ever since a few quarters ago and we believe we are among one of the better companies position industry to you know to to kind of enjoy the more rationalization of the delivery environment so I guess as a little conclusion we reiterate our annual guidance on top line for 100 and 102 100 to 102 on com sales which is something we're pretty confident to achieve and specific to quarter two as I mentioned the prepare remark we do expect a sequential improvement in our com sales in young China KFC empty the hut and more specifically on top line delivery sales growth, we still believe it's a long-term trend, although the subsidy is more rationalized, but still it is growing on delivery mix, so we still face some wider cost pressure and the delivery sales mix will increase, at least in the near future. In terms of TA, KFC's delivery orders generally have a higher TA, so a slower growth in delivery will translate into a slight decrease in TA from the growth in smaller orders. And looking forward, consistent to what we shared in February earnings, we expect KFC TA to either slightly decrease or stay generally stable for the full year. And for Pizza Hut, the delivery TA, which is a bit opposite to KFC, the delivery TA for Pizza Hut is lower than Dying In. So slowed down delivery sales growth will translate to a more moderate decline in TA for Pizza Hut. And lastly, on the margin front, as we mentioned in the prepared remark, in the second half, given the delivery mix is already a bit higher in the base, so the rider cost pressure will moderate. So hopefully, together with our other efficiency initiatives, that will help better support our margin in the second half. And in terms of the second quarter, the pressure is slightly less compared to quarter one. And as always, we use a balanced approach to drive sales at the same time to protect our margin and price integrity. Thank you, Michelle.

Thank you, Joey. Thank you, Adrian. Very clear.

Thank you. And the next question comes from Chen Luo from Bank of America. Please go ahead.

Hi, Joey and Adrian. Congrats on the results despite a very fluid environment. In fact, the recent sale-off of share price has actually baked in very, very expectation. but I've seen the result I feel really relieved so my question is actually on our OP margin guidance I remember previously we target a largely stable OP margin Q1 but the actual result for like 30 bit OP margin expansion and just now we confirmed that in second half we may see easing rider cost pressure given a more normalized base for the delivery sales mix and this together with a lot

of cost-saving initiatives is it fair to say that compared with our previous guidance of flat or slightly upward trend of my open margins there actually could be outside risks to our full year margin guidance that's my question thank you ha ha ha thank you look and take the question on margin I think our margin guidance share in early February was a slight increase in our operating profit margin for the group for the full year and I understand that in the market different people interpret slight increase a bit differently right what is slight and indeed you know you know quarter one learning sorry in the quarter forward in the early February we we mentioned that ok margin for the group will be generally stable or broadly in line with the same period last year for quarter one it turned out to be a 20-30 basis points expansion OP so it's still I guess broadly in line and you know as a matter of fact second half indeed the rider cost pressure will moderate right because the delivery mix is higher in the base and but specifically on the three key line items I guess after I share some more color, it will be helpful for you guys and for the other investors to help, you know, put together and refresh your model for the coming three quarters in the year. For COS, we expect COS to be broadly stable for the group. And as you notice, the KFC COS in quarter one is generally stable. And the Pizza Hut, there is an increase in COS. there's there are a few reasons one is that all you can eat campaign which is definitely great value for money second is as we mentioned last quarter we have the new lots of new menu items which we're still in the process optimizing the cost and thirdly is because of the higher delivery mix which results in a higher package cost for pizza which is actually a bit more specific to pizza because for KFC the package cost similar before between dining and delivery so So with that, the COS for Pizza Hut will be between 33% and 34% for the full year, which is a bit higher than last year. However, we still guide margin expansion for Pizza Hut and restaurant margin, open margin front, given the tailwind on O&O. So that's on COS for the group KFC and Pizza. For COL, I think we face consistent headwind on COL because of the delivery mix increase. and we get pretty specific figure out what is the COL pressure that due to the increase in delivery mix for the quarter and I'm sure you can have a recently a good modeling on the COL for the remainder remainder of the year depending on your specific assumption on the delivery mix so that's On COL, we face tailwind. That will be worse on COL. O&O, we do face tailwind on O&O due to our efficiency initiatives. On one hand, we will have hopefully better rental because currently we still, although there's initial signs of a good turn of the property market or initial sign of stabilization in the property market, but still on commercial real estate, it's quite favorable to the merchant as of right now. And we would like to leverage up the opportunity to further optimize our rental. So you see a little bit of that benefit in quarter one, hopefully that will come in the coming quarters as well. And our lower capital expenditure, which results in a better depreciation, that will benefit O&O as well, together with other initiatives, including A&P, et cetera.

So overall, the annual guidance on margin, which is a slight increase in OP margin for the group, is unchanged. hopefully we are able and we are competent to be able to deliver that I just want to add one comment about PISA margin which was very nice for the quarter one this year it's actually I think one of the highest since the turnaround initiatives in 2018 we'd be very consistent with our direction of Pizza Hut turned around, sells first, profit later. Now is later. Later is now for Pizza Hut.

Yeah, so that remark is really impressive. I mean, remember, during the investor day, we mentioned a three-year target of a 14.5% OP margin, a restaurant margin for Pizza Hut. Based on the current run, we think that we should actually achieve that target earlier than expected.

Slightly, slightly. The inflation point was 2024, indeed, because 2024, we feel that sales was in good position. Then we start to really press the accelerator on the margin side, and we are happy to see what we are seeing. Thank you, Watson.

Okay, thank you. Congrats. Thank you.

Thank you. Our next question is from Lillian Lu, Morgan Stanley. Please go ahead.

Hello, Zhou Yi and Adrian. Thanks for taking my question. My question is actually on the underlying demand trend and related to that, the pricing momentum as well, because I think in the release, one important statement was you are still very excited uh encouraged by the underlying improvement of consumer sentiment with a more modern moderated subsidy um do we see um the within merchants um is the competition also getting mild or actually everybody trying to rush up um the traffic um without as much subsidy from

platforms so what's the dynamic of the demand and also competition right now and also on the like-for-like basis are we seeing chance for some improvement on pricing in terms of the whole industry and also for ourselves thanks I'm with two quick comment on that and maybe agents a bit more color to add we we have shared our view on the improving consumer sentiment since yesterday last November and we certainly have observed some stabilization of pricing trend not only we took the pricing but we also see more players taking pricing so it's that might be a sign that shows or reflects a more supportive consumer environment and right now the more rational competition among delivery platform is happening so we believe that's constructive for the meat and long term as well but but other than pricing what we still fundamentally believe is still great food and great value so without that pricing is is a bit too sort of too lonely to be there so so you know come come during the the after the Chinese New Year now we we are seeing really good performance in breakfast breakfast is extremely competitive in terms of pricing but if you have not tried our 100 gram in the hot dry noodles that are selling really well right now. Right now it's time because it might go out of stock pretty soon. And then Pizza Hut, we launched the 30 new dishes, the new platform like Fujita, which is a fantastic value for money and really fun way to eat steak.

Think about Chinese we sold almost 40 million steak last year in Pizza Hut but it's more fun to eat the steak in Fuhita with the sauce and wrap so so all these are happening at the same time together with pricing it cannot go alone yeah I guess just one little note to add which is well as Joey mentioned right the the pricing environment is becoming a bit more favorable and will encourage a continue to be encouraged by the improving consumer sentiment but when that translate to TA obviously you know people out here is you can you know our strategy is to decrease the TA to be the more mass-massive friendly for KFC as we repeatedly mentioned in the recent earnings that for this year we do expect KFC TA to decrease you know as actually I think I mentioned a lot about the investors course as well that even in the inflation and the very inflationary environment with the speed of our innovation right now the TA may still decrease that's because of the mix the blend not necessarily because of pricing or discounting so that's just something that I would like to caution right the higher growth in breakfast as Joey mentioned higher growth in K Pro higher growth in cake coffee those are all lower TA compared to the broader KFC business so the higher growth itself or the mix itself of course the slow a

like decreasing TA so this is very different from the US market where you know the TA represents roughly the inflationary index but in China here with the innovation it's a different story so thank you thanks Joey and Adrian that's very clear thank you question is from CG Lin from CICC please go ahead okay thank you Joey and Adrian so I have a small question on K Pro we see that the K Pro has performed very well and achieving initial success and raise the expansion targets so

could you please elaborate more behind this and also if you're an estimate of roughly how many capsies are suitable or have potential for opening kpro next to them thank you thank you city yeah we are very excited about capable as well although the the model it actually took seven years to to come to fruition and we as as we mentioned to prepare remark we were we are accelerating the development of kpro to about 600 stores the menu if you have tried those before are completely different. There's a very lovely sort of video on the social media. It's not from our company, but I thought that the guy did a good job to talk about the capable story. The food is the Chinese-style light meal. I like the quote there. It's zi lu, self-discipline. It's not zi nu, it's not self-torture. So the food is healthy. a very reasonable calorie but you're still full, you're not hungry, that's important. And then the drink mix is very encouraging as well. We are selling very well with the milkshake, you know it's a business and this is much higher than the KFC business, with that said we think the drink business, we think KFC has a lot more potential. But compared to KPRO, so the product-wise very small manual but you know obviously we are doing something right after learning for seven years. And then tier 1, tier 2 cities are doing well and then we are also testing in tier 3 cities and we have some very exciting early results there so will continue that and the result is encouraging is it's adding to about 20 percent of ourselves uplift to the parent store and the margin is good so many many good things but the best thing best thing among all is it has incredibly good reputation on food safety other than the the food tastes really good the customer really got it our food safety is is is very trustworthy they feel they can feel comfortable about it and that really show our long term strategic mode for young China our credibility in food safety and that's something money cannot buy it can only be done over 40 years how work so the this year for 2026 what's the size of business with 600k pro roughly could be could be up to a billion and B cells which which is nice so even after the first quarter we we are adding you know two more store to our original plan we accelerate the pace for the second half we are open mind about it it really depends on the the testing of the tier three cities so it's exciting we are very grateful that our operation team really is up to the challenge but we open mind about the further growth pace thank you thank you Joey that's very encouraging thank you thank you and the last question today comes from Ethan Wang from CLSA.

Please go ahead.

Good evening, Joey, Adrian. I have a follow-up question on the COL. So Adrian mentioned the pressure will be easing the second half because of the base. I'm just wondering, is that the case for quarter two as well? And if we just have a longer horizon the next year or three years after. So we always expect this COL growth to be moderate and which will be fully offset by the decrease in ONL.

Is that what we are trying to achieve when we set the stable restaurant margin target, which means it doesn't really affect how the oil material price doesn't really affect how this trend is going thank you thank you Ethan so in quarter two as we mentioned the prepared remark the pressure on VOL was slightly ease or slightly ease but you know given there is only for young China given there's only one month of delivery subsidy taking the delivery subsidy in the base which is the month of June last year and before the second half it's the full of the second half that the subsidy was in base and the delivery mix was in the base so so that's why I would say the pressure was slightly ease overall I think our margin guidance in the preparing mark for quarter two was we expect a broadly stable OP margin for the group year-over-year for quarter two that's considering the different factors on COS, COL, and O1O so that's on the short term. On second half I think one of the previous response to actually provide quite a bit of details on the line-by-line breakdown. The second part of the question on long-term margin for long-term margin at this point in time we're still quite confident in our guidance shared in the yesterday in November last year, which is for KFC to have a relatively stable margin over the long run, and for Pizza Hut to have a margin expansion to exceeding 14.5 percent rational margin by 2028. I think one of the analysts was making the comment that we might be able to achieve that slightly earlier, which at this point in time, we don't have a revision in our guidance. but overall for COL in general given the increase in delivery with or without a delivery delivery subsidy what the delivery mix will increase at the growth will be solid so COL we will face pressure on on the rider front although the per ticket cost on rider may decrease so I we hopefully will be able to offset that pressure utilizing the O&O and a bit of COS as well over the mid-to-long run in the next couple of years.

Yeah, Ethan, thank you. Got it. Thank you, Adrian.

Thank you, Adrian. This concludes our Q&A session. Thank you for joining the call today.

Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.