RHB Group Research analyst Shekhar Jaiswal has maintained his “buy” call for Japan Foods Holdings, lifting his target price to 55 cents from the previous 50 cents, representing a 31% upside.
He has also made slight upgrades to his FY2023 and FY2024 estimates, amid expectations of a gradual revival in consumer discretionary spending as Singapore is now fully open for business and tourism.
“While a return to pre-pandemic earnings may still be few years away, Japan Foods’ plans to gradually resume its international expansion should support higher profits in the medium term,” says Jaiswal.
He adds that the reopening of the domestic economy and the international borders would boost Japan Foods’ revenue for the next 12 months. "The firm is also in a much better position to ride the recovery, as the pandemic has lowered competition with many food and beverage (F&B) operators either shutting or scaling back operations."
To note, Japan Foods had cut its restaurant count to 50 during the pandemic but had increased it to 52 as at September 2021.
Jaiswal further highlights that Japan Foods’ flexible business model puts it in a favourable position to expand market share. RHB likes its ability to rotate restaurant brands across over 50 leased spaces in major retail locations and constantly introduce new concepts.
Despite Covid-19, Japan Foods launched its new halal concept restaurant Tokyo Shokudo, which has received positive responses from the Muslim community since its Nov 2020 launch. In about 10 months, Tokyo Shokudo restaurant numbers have expanded from one to six, generating $3.2 million revenue in 1HFY2022 or about 15% of 1HFY2022’s total revenue.
Remaining focused on raw material costs, Japan Foods was able to keep its gross margins above 84% throughout the pandemic. While FY2021 EBIT was supported by government grants, RHB’s FY2023 EBIT already factors in a zero government support.
Japan Foods had no borrowings and a cash balance of $18.2 million as at September 2021. During FY2018-FY2020, its dividend payout ratio stood at 68%-214%, Jaiswal notes. In its 1HFY2022 results presentation, Japan Foods said it will be revising its dividend policy to distribute at least 100% of net profit as dividends from FY2022. RHB estimates Japan Foods' dividend yield to be above 5% for FY2022-FY2023.
As at 10.13am, shares in Japan Foods are trading flat at 42 cents.
