Singapore’s F&B industry rebound sparks fresh opportunities for companies to explore new concepts and markets. Enter Japan Foods Holding (JFH) 5OI , now offering Muslim diners a wide range of Japanese dishes.
The first halal JFH brand is Tokyo Shokudo, a ramen chain with eight outlets islandwide. It also manages the halal-certified Kyoto Shokudo Cafe & Udon at VivoCity, which offers a selection of matcha-infused items alongside udon and desserts. In total, the group has eight halal-concept restaurant brands.
Executive chairman Takahashi Kenichi says creating a truly satisfying halal ramen is challenging, especially since the soup base is typically made with pork bones. During the pandemic, when several of the company’s outlets were closed or operating at reduced capacity, the group decided to research and develop halal ramen.
The group retained all its full-time staff throughout this period, with some redirected to work on Kenichi’s goal of launching a halal brand. Says Kenichi: “We diverted some of our staff’s attention to creating halal versions. We finally succeeded and opened our first halal outlet in November 2020.”
The first Tokyo Shokudo branch opened in Tampines Mall and the tremendous response from customers signalled an untapped potential within this market. The group then expanded its presence in the halal segment and established a dedicated central kitchen for such offerings.
JFH CFO Kenneth Liew says it repurposed one of its two central kitchens into a halal facility, serving 30 restaurants. By opting for conversion instead of building a new halal central kitchen, the group avoided significant capital expenditure (capex).
See also: Japan Foods' chief chef to resign
Better earnings
Kenichi says its halal restaurants have garnered positive feedback from the Muslim market and piqued the interest of non-Muslims. He is hopeful about the revenue generated by the new brands introduced in FY2024 ending March 2024. Among these brands is BBQ Seoul Shokudo, a Korean-style barbecue restaurant at Velocity Novena Square. The restaurant commenced operations in April and is obtaining halal certification from the Islamic Religious Council of Singapore (Muis) as of press time.
JFH also operates popular brands like Ajisen Ramen, Menya Musashi, New ManLee Bak Kut Teh and Fruit Paradise. It currently holds over 20 brands, with 68 outlets across the island.
“We believe the fastest revenue growth will continue to be from our halal segment, which in FY2023 contributed to more than 30.0% of total revenue versus 25.1% in FY2022. Having served customers in this market for about two-and-a-half years now, we have a deeper understanding of their tastes and spending patterns, and I believe we will be able to cater to their needs even better,” adds Kenichi.
Following the introduction of its halal offerings, JFH experienced earnings and revenue improvements. In FY2023, the group achieved earnings of $4.1 million, marking a significant 27.7% increase from the previous year.
Additionally, JFH achieved a record-breaking revenue of $78.5 million, surpassing pre-Covid-19 levels by 43.8%. It represented the group’s strongest topline performance since its establishment in 1997.
The boost can be primarily credited to the robust growth of JFH’s halal segment, the new brands in its portfolio, and higher sales across all its outlets. In alignment with the revenue surge, gross profit rose substantially by 43.7% y-o-y, reaching $66.4 million. Gross profit margins remained steady at 84.6%.
Despite the aggressive expansion, Liew says the group managed to maintain a net cash finance position. “We are funding our expansion with internal resources. Our restaurants are all profitable cash businesses. We look to spend prudently and manage our finances well.”
Since 2013, JFH has remained debt-free. In FY2023, the group announced a final dividend of 1 cent. While this was lower than the 1.35 cents declared in the previous year, Liew says the total dividend declared for the entire FY2023 of 2 cents is higher than the 1.8 cents in FY2022.
Liew adds: “We have a dividend policy whereby we payout 100% of our earnings, subject to our capex requirement and other cash-flow considerations. We wanted to be more prudent this year and did not pay out 100%. We want to manage our dividend payout to be more constant so that shareholders can expect their dividend income instead of a varying one.”
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
Positive outlook
RHB Group Research analyst Shekhar Jaiswal expresses optimism about the group’s overall outlook and anticipates a stronger FY2024. Jaiswal says that although the group’s subsidiary Japan Food Enterprises (JFE) was prohibited by the Ministry of Manpower (MOM) from applying for new work passes until May 31, 2024, and paid a fine of $75,000, it can renew existing work passes if they adhere to existing MOM rules.
Investigations revealed no criminal offence and that the rule violation resulted from “administrative oversight”. Liew clarifies: “JFE is one of our smaller subsidiaries, and most of our brands are housed within our other subsidiaries. Therefore, we must retain the existing staff under this specific subsidiary and refrain from hiring new employees. This should not pose a problem.”
Kenichi adds that he will personally oversee the group’s administrative work regarding its workforce to prevent such incidents. Jaiswal and the group expect no impact on its finances and expect the group’s expansion plans for the remainder of the year to proceed smoothly.
Jaiswal says: “The restaurant industry in Singapore has continued to register strong positive sales growth in 2023. JFH’s focus on growing its profitable halal restaurant brands and the return of positive growth for its overseas ventures’ earnings should enable it to deliver strong growth in FY2024.”
He estimates that the group’s net profit will increase to $5.5 million in FY2024 from $4.1 million in FY2023. This comes from JFH’s ability to pass on some costs to consumers in the form of marginally higher prices for some items on the menu. The analyst believes the group should maintain its gross margin at about 84.6%. As inflationary pressures are expected to moderate in FY2024, this should translate into an expansion in net margin to about 6% in FY2024 from about 4% in FY2023.
“We expect JFH to maintain a close to 100% dividend payout ratio during the forecast period. This implies a dividend yield of 5%,” says Jaiswal, adding that the counter’s FY2024 P/E of 13.26 times is compelling, given its robust growth potential.
Business recovery
JFH plans to expand into new markets and form joint venture partnerships. They have partnered with Thailand’s Minor Food Group to introduce the halal-certified Pizzakaya brand in Singapore and open Siam Smith, a Thai restaurant, in Tokyo, Japan.
Although Siam Smith opened shortly after lifting Covid-19 restrictions, Kenichi says the pandemic has shifted the habits of Japanese locals, who now prefer to stay home. The store eventually closed due to poor response. The group has reopened a Siam Smith at a different location in Tokyo.
Still, JFH’s wins are shared by fellow operators who can now look forward to the much-awaited recovery. Jumbo Group, for instance, has returned to profitability in its latest 1HFY2023 ended in March. Earnings reached $7.9 million compared to a loss of $4.5 million the previous year.
Notably, revenue surged by 73.7% y-o-y, totalling $85.9 million. This growth was primarily driven by a 133.6% increase in revenue from the group’s Singapore operations, reaching $70.2 million. The resurgence can be attributed to corporate events, business entertainment, family gatherings, wedding events and inbound tourism.
“The popularity and strong demand for our Jumbo Seafood brand resulted in the conversion of our Sui Yi Gastrobar at The Riverwalk to a Jumbo Seafood outlet in January 2023,” says Jumbo in its 1HFY2023 earnings release.
However, the brand’s China and Taiwan outlets lagged behind as China had only recently lifted its zero-Covid policy and its Taipei operations were shut down for a week for renovation.
Similarly, Tung Lok Restaurants generated earnings of $4.2 million in FY2023, compared to a loss of $1.8 million in FY2022. This achievement was driven by a 65% y-o-y increase in revenue to a record-breaking $86.2 million, surpassing pre-pandemic levels.
The revenue growth is due to the improved performance of existing outlets, the successful rebranding of three outlets in 1HFY2023, the opening of three new stores, and the positive contribution from the catering business. These outcomes directly resulted from the recovering economy and the easing of restrictions.
Looking ahead, the group faces various challenges, including labour shortages, rising ingredient costs, energy concerns, staffing issues, and supply chain disruptions due to changing geopolitics.
It has prioritised disciplined capital management and a robust balance sheet to address these issues. The strategies will involve diversifying revenue streams, enhancing digital initiatives, optimising margins, and exploring overseas expansion through franchising or licensing.
