RHB Bank Singapore analyst Shekhar Jaiswal is keeping “buy” on Japan Foods 5OI , lifting his target price to 65 cents from 60 cents previously.
In his May 29 note, Jaiswal highlights that Japan Foods had reported a strong end to its FY2023 ended March with a record revenue of $78.5 million, up 44% y-o-y. This is on the back of strong momentum of its halal segment, the addition of new brands to its portfolio, as well as positive same-store sales growth for most of its brands.
“This was ahead of our expectation and is the highest revenue Japan Foods has ever reported since its inception in 1997. However, thanks to higher selling, operations and lease interest expenses, the reported profit of $4.1 million came in line with our expectations,” Jaiswal says.
Japan Foods’ share of associated and joint venture companies also witnessed a 147% growth y-o-y amid the lifting of Covid-19 restrictions in Hong Kong. The company had declared a final dividend of 1 cent per share, Jaiswal notes.
Moving forward, Jaiswal expects Japan Foods to deliver 7% revenue growth in FY2024 on the back of an increase in the number of stores. The company should also see positive effects from its expansion into halal concept restaurants — in order to increase operational efficiency, Japan Foods has to put in place a central kitchen specifically for halal restaurants, the analyst adds.
“We believe it will be able to maintain its gross margin at about 84.6%. We are expecting inflationary pressures to moderate in FY2024, which should translate into an expansion in its net margin to about 6% from 4% in FY2023. We estimate net profit to increase to $5.5 million from $4.1 million in FY2023,” says Jaiswal.
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RHB has upgraded Japan Foods’ FY2024 and FY2025 profit estimates by 8% and 9% respectively.
While the company has paid 85% of its net profit as dividends in its FY2023, the analyst expects it to maintain close to 100% dividend payout during the forecast period, implying a dividend yield of 5%. RHB views its ex-cash FY2024 P/E of 10.4 as compelling, given Japan Foods’ robust growth potential.
As at 2.39pm, shares in Japan Foods are trading 0.5 cents lower or 1.14% down at 43 cents.
