SINGAPORE (May 10): RHB is maintaining its “buy” call on Japan Foods Holdings with an estimate fair price of 63 cents.
This came on the back of the group this morning announced that its 4Q earnings have surged 68% to $0.9 million, compared to $0.56 million in 4Q17, bringing FY18 earnings to $5.78 million, 24.0% higher than $4.66 million in FY17.
Revenue for 4Q18 came in at $16.2 million, 6.5% higher than $15.2 million last year, while FY18 revenue came in 3.6% higher y-o-y at $67.8 million.
See: Japan Foods Holdings posts 68% rise in 4Q earnings to $0.9 mil; declares 1.3 cents dividend
The group’s FY18 revenue growth continued to be driven by key franchise brands – Ajisen Ramen, Menya Musashi, Osaka Ohsho and the newly-launched Shitamachi Tendon Akimitsu. Except for Osaka Ohsho, which saw a marginal y-o-y decline in revenue, all other brands witnessed y-o-y improvements in earnings.
Revenue contribution from the Ajisen Ramen, Menya Musashi and Osaka Ohsho brands increased to 74.4% of total revenue in FY18, from 71.9% of total revenue in FY17
During this period, the group has declared dividends of 1.3 cents per share. And including the interim dividend of 0.8 cents, total dividends declared for FY18 amounted to 2.1 cents.
This is the highest ordinary dividend that the group has paid since it listed, excluding special dividends paid in FY13 and FY14.
In a Thursday report, analyst Shekhar Jaiswal says, “FY18’s DPS puts the group’s dividend yield at 4.1%, which is the highest amongst dividend-paying listed restaurants on the Singapore Exchange.”
As at end-FY18, the group’s cash balance stood at $21.9 million.
“We believe Japan Foods could use this strong net cash position to either continue paying out higher dividends and/or explore opportunities to expand its presence in the Asean region by way of joint ventures (JVs) and acquisitions,” adds Jaiswal.
Despite its industry-leading dividend yield, gross profit margin, and strong earnings growth prospects, the stock is trading at a significant discount to peers, which the analyst assess as unjustified. Moreover, its net cash position accounts for 25% of the group’s market cap.
As at 2.50pm, shares in Japan Foods are trading at 50 cents, giving it a FY19 price-to-book ratio of 2.43 with a dividend yield of 4.0%.
