KGI Securities is maintaining its “outperform” rating on F&B group Japan Foods Holding, with a decreased target price of 56 cents from 65 cents previously, as analyst Joel Ng accounts for a weaker FY2022 ending March 2022 due to the delayed reopening plans in Singapore.
This follows Japan Foods’ latest 1HFY2022 results announcement. It has reported a $1.6 million loss, reversing from the $0.3 million earnings recorded the year before.
The losses recorded are despite higher revenue of $21.2 million logged for the period, up 14.5% y-o-y driven by higher revenues from brands including Afuri Ramen, Ichiro Ramen, Fruit Paradise and Yonehachi, as well as contributions from new halal brand Tokyo Shokudo.
The group declared an interim dividend of 0.5 cents per share, lower than 0.75 cents issued in the previous year.
See: Japan Foods falls into the red with $1.6 mil loss in 1HFY22 on lower grants and rental concessions
Ng notes that Japan Foods operated 52 restaurants in Singapore as at end-September, a slight increase from 50 as at end-March, but a decline from 59 as at end-September 2020.
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“However, we believe the worst is behind us. The break of dawn brings new opportunities, which the group has taken advantage of to expand into areas such as Halal-certified restaurants,” says Ng.
Meanwhile, the group’s venture into Tokyo has been delayed due to the pandemic. But, on a positive note, the group has retained a well-located store in Tokyo that can start operations without the need for major operations. “We understand that Japan Foods pays a minimal fee to retain the location and can potentially open in March 2022. The success of this restaurant would be a key element to Japan Foods’ growth profile as it would open up a completely new market for the group,” Ng says.
The analyst believes that the group’s revenue mix is better diversified now. While Ajisen Ramen’s 29.7% revenue contribution in 1HFY2022 is still the largest, it is down from 35.1% in the prior year period. Other brands that are contributing more include Tokyo Shokudo (15.2% of 1HFY2021 revenue), which is the group’s first-ever Halal certified restaurant that was started in FY2021. Japan Foods now has six Tokyo Shokudo restaurants (end-September).
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“After more than one and a half years of start-stop dining restrictions, we believe Singapore is finally ready to ease restrictions on a more sustainable basis,” says Ng, adding that the recent announcements of the vaccinated travel lane (VTL) for up to 16 countries and easing of restrictions of dining out for vaccinated people from the same household is evidence of the government’s focus to treat Covid-19 as endemic.
Overall, Ng sees a brighter future for the F&B industry with increasing vaccination rates and improving treatment for Covid-19.
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Despite an expected weaker FY2022, the analyst believes that Japan Foods is in a favourable position to grow and expand its market share given its flexible and resilient business model. “We particularly like its ability to rotate among its restaurant brands and constantly bring in new concepts, supported by its rock-solid balance sheet,” he adds.
At 4.45pm, shares in Japan Foods are trading at 41 cents, giving it a FY2022 price-to-earnings ratio of -59 times and a dividend yield of 2.4%.
Photo: Japan Foods Holding