Buy Yum China spinoff on growth potential, attractive valuation, Morgan Stanley says

Logos of KFC, owned by Yum Brands Inc, are seen on its delivery bicycles in front of its restaurant in Beijing.
Kim Kyung-Hoon | Reuters

Morgan Stanley initiated coverage of Yum China with an overweight rating due to the company's compelling valuation as it completed its spinoff from parent Yum Brands.

Yum China has the exclusive rights to the KFC, Pizza Hut, Taco Bell, East Dawning and Little Sheep brands in China.

"Spinoff dynamics and skepticism over recovery create a valuation opportunity [for Yum China shares]," analyst John Glass wrote in a note to clients Tuesday.

"Our confidence is based on new management and new initiatives (focusing more on core menu, renovating stores, embracing the growing digital channel with a strategic investment from Alipay)."