Yum China (YUMC) shares tumbled as much as 10% Tuesday after analysts at UBS highlighted potential downside risks to the company's first-quarter guidance.
YUMC previously provided Q1 guidance of relatively flat recurring operating profit. It is set to report its financial results for the first quarter ending March 31, on Monday, April 29, after the close.
UBS, which has a Buy rating on the stock, raised the price target to $54 from $55 per share.
The investment bank said it had a conversation with the restaurant operator's management. While UBS largely maintained its Q1 revenue projection, it now sees a 13% net profit decline for the company after considering a lower restaurant profit margin and lower general and administrative expense ratio.
Analysts at the firm stated that YUMC has underperformed MSCI China staples and discretionary indexes following the Chinese New Year, which they feel suggests the "earnings downside risks have been partially factored in.”
Furthermore, UBS has observed signs of increasing competition for the company's delivery business.