RHB Group Research analyst Shekhar Jaiswal has kept “buy” on Japan Foods 5OI with target price of 60 cents, citing promising outlook.
In his March 10 note, Jaiswal highlights positive surprises from Japan Foods’ 9MFY2023 business update. Revenue, for example, went up 54% y-o-y on the back of strong demand for foods and beverages (F&B) services following relaxed Covid-19 restrictions and positive response to the company’s expanded franchise in halal-segment restaurants.
“Despite inflationary cost pressures, it was able to sustain an 84.6% gross profit margin. Even with a sharp decline in government support and rental rebates from landlords, the group managed to report a 95% y-o-y increase in net profit to $3.2 million. This accounted for 84% of our estimate,” says Jaiswal.
Moving forward, Japan Foods should deliver strong topline growth on the back of an increase in dine-in customers — despite operating challenges that “plague” the F&B industry in Singapore, says Jaiswal. The company should also see positive effects from its expansion into the halal concept restaurants.
The number of halal-certified restaurants that it operates has risen from just four in FY2021 to 21 as at December. Given the growing demand for halal-certified restaurants, DBS maintains that the segment will continue to support strong revenue growth for the group during the forecast period.
Japan Foods also continues to bring new concepts and compelling brands to Singapore. Its newly launched brand “Nakiryu” at Plaza Singapura has received positive response from the customers. To be sure, Nakiryu is a Japanese restaurant that has been receiving a Michelin star in Tokyo every year since 2017.
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On the back of better-than-expected 9MFY2023, RHB has upgraded its FY2023-FY2025 profit estimates by 5%-6%. Jaiswal notes that Japan Foods paid 100% of its net profit as dividends in FY2022 and expects it to maintain this during the forecast period. This implies a dividend yield of 5.5%.
“We view its ex-cash FY2024 P/E of 11x as compelling, given the group’s robust growth potential,” says Jaiswal.
As at 1.49pm, shares in Japan Foods are trading 0.5 cents lower or 1.17% down at 42 cents.
