RHB Bank Singapore Shekhar Jaiswal is keeping his “neutral” call on Japan Foods Holdings (Japan Foods) at a lowered target price of 29 cents from 30 cents previously, following the company’s 9MFY2024 ended Dec 31, 2023 results. For the period, Japan Foods’ 9MFY2024 profit after tax and minority interests (patmi) came in “well below” his estimate amid higher-than-estimated tax expenses.
“We maintain our FY2024 estimates, as we expect some near-term improvement in consumer spending amidst recovering domestic economic growth and the supportive measures announced in the 2024 Singapore budget,” writes Jaiswal.
For the period, Japan Foods’ revenue of $65 million was 12% higher y-o-y, driven by its expanded halal offerings and a higher number of operating restaurants, accounting for 78% of the analyst's FY2024 estimate.
The analyst notes: “Its gross profit of $55 million, a 12% y-o-y growth, was in line with our estimate, as the gross margin is tracking our projection.”
Meanwhile, the company’s patmi pointed to a profit of $587,000 in 3QFY2024, reversing the previous quarter’s loss of $130,000.
Despite this, Jaiswal adds that due to the “sharp rise” in tax expenses for the quarter, Japan Foods’ 9MFY2024 reported patmi has accounted for only 65% of his full-year estimate.
Looking forward, the company remains focused on growing its number of halal-concept restaurants.
In 3QFY2024, it added nine new restaurants, of which six were halal-concept restaurants, also shutting down three non-halal restaurants during the quarter.
With a net addition of six restaurants in the quarter, Japan Foods’ total restaurant count stands at 78, of which 38 are now halal-certified, representing 48% of its total.
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In its 1HFY2024 results announcement, Jaiswal notes that the company mentioned that around 45% of the company’s revenue was now accrued from its halal-concept restaurants, against around 25% in 1HFY2023.
The analyst writes: “Japan Foods aims to capture a bigger share of the halal restaurant market, and it will continue to explore opportunities to open more restaurants under its existing halal concepts as well as launch new concepts.”
Upside risks noted by him include the continued strong performance of the company’s halal-concept restaurants, while downside risks could include the growth of increased competition in the food and beverage (F&B) industry, a manpower crunch, and the increasing cost of operations due to inflationary pressures.
As at 10.25 am, shares in Japan Foods Holdings are trading flat at 27 cents.
