China Restaurants: Revisiting the cost inflation risk from rising oil price and El Niño impact

With Brent/WTI oil prices rebounding from the July lows by c.50% to ~USD105/100 and a Super El Niño expected for 2026/27, we revisit the potential input-cost and margin impact on our covered China restaurant companies. Historically, global sugar price was the most El Niño-sensitive raw material (positive correlation with domestic sugar price, cor=0.75), Brazilian coffee bean output is also exposed, and PET has stayed elevated and volatile, while most other inputs remain at favorable levels. Our analysis shows a relatively low correlation between companies' cost indices and margin performance, attributable to diversified raw-material/product mix enabling menu adjustments, several-month price lock-ups/inventory on commodities, and the role of cost control, promotion and franchise policy. Based on our updated sensitivity analysis, Luckin is most exposed to coffee bean prices (coffee +20% ~ -3.6pp OPM). We maintain our preference for YUMC (Buy, on CL), Guming (Buy, on CL) and Luckin (Buy,