RHB Group Research analyst Shekhar Jaiswal has kept his ‘neutral’ rating for Japan Foods Holdings with an unchanged target price of 37 cents after it posted its FY2021 ended March results.

See: Japan Foods records 2HFY21 earnings of $3.3 mil, declares final DPS of 1.75 cents

While Japan Foods reported a stronger 2HFY2021 following the end of the circuit-breaker period, Jaiswal highlights that its full-year profits of $3.6 million were largely supported by government grants and rent reliefs amounting to $10.3 million.

However, he notes that Japan Foods reported a “healthy” gross margin of around 85% for the year before accounting for any cost support, indicating a strong operating performance.

He also highlighted that Japan Foods declared a total dividend of 2.5 cents per share - comprising an interim dividend of 0.75 cents per share and final dividend of 1.75 cents - representing 120% for FY2021 net profit.

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The group is also revising its dividend policy to distribute at least 100% of net profit annually, up from 50% previously, from FY2022 onwards. “Amidst expected earnings recovery, we believe dividend yield should remain above 4.5% for forecast years,” Jaiswal says.

Looking ahead, Jaiswal expects Japan Foods’ revenue to rebound once current restrictive measures are eased and remains positive on the long-term recovery trend.

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In addition, he views Japan Foods’ strong balance sheet (with net cash excluding lease liabilities making up 33% of its market cap) will help it sustain higher dividend payouts while providing headroom for growth. 

“Amidst impact from the Covid-19 pandemic, we expect a good number of F&B players to exit operations in Singapore in the next 1-2 years, therefore reducing competition for Japan Foods,” he explains.

As at 4.57pm, shares in Japan Foods are trading flat at 39.5 cents.