), while providing a review of the company's divisional performance in 1Q15. Yum reported its top line at $2.6 bn, down 4 percent y/y. System sales growth, excluding currency impact, rose 4 percent y/y. Worldwide restaurant margin contracted by 1.7 percentage points y/y to 17.5 percent, while worldwide operating profit dipped 8 percent y/y, due to continued pressures witnessed in the China division, which is the largest contributor to the company's profitability. The China division generated sales of $1.26 bn, down 9 percent y/y, with SSS declining 12 percent y/y. Despite the decline, this was an improvement over the 16 percent decline in SSS recorded in the previous quarter. "Thus, sales in China appear to be gradually picking up and the company expects sales in this region to normalize by H2CY15," Thomas said. The KFC division, which comprises of all KFC restaurants, with the exception of the ones under the China and India segments, recorded sales of $642 mn, representing a 3 percent y/y decline. However, SSS growth came in at a healthy 5 percent y/y. This was the highest SSS growth recorded in 8 consecutive quarters. Moreover, restaurant margin stood at a healthy 15.3 percent. "The company expects the segment to continue posting strong results in 2015, owing to a robust international performance and an improving U.S. business," Thomas wrote. The Pizza Hut division, excluding China and India, recorded sales of $271 mn, almost flat y/y. Restaurant margin rose by 80 basis points y/y to 11.6 percent. "The re-launch of the Pizza Hut brand in the domestic market is yet to deliver results, though the company expects to reap the benefits, going forward," the report mentioned. The Taco Bell division, excluding India, reported sales of $431 mn, growing 10 percent y/y. The division generated robust SSS growth of 6 percent y/y, with 7 percent y/y growth in the domestic market, backed by solid breakfast sales. Restaurant margin stood at 19.6 percent, up by 4 percentage points y/y. "Currently, the stock trades at 22x CY16E earnings, which is still at a discount to many of its peers as well as in comparison to the industry average P/E of 24x. We believe that the stock deserves to trade at higher multiples in view of the company's high RoE of 80%+ and healthy free cash flow generation. Moreover, any move by management to separate or hive off the company's China division will act as a key upside trigger for the company, as well as the stock," Thomas commented.