Japan Foods' proposed JV is good news, but industry headwinds persist: RHB

Japan Foods' proposed JV is good news, but industry headwinds persist: RHB

By: 
Michelle Zhu
10/12/18, 11:07 am

SINGAPORE (Dec 10): RHB Research is maintaining “neutral” on Japan Foods with a target price of 48 cents, post the announcement of the group’s 50:50 joint venture (JV) with Minor Singapore.

To recap, Japan Foods recently signed a memorandum of understanding with Minor which will enable the former to bring Minor’s Thai restaurants to Japan, while the latter expands Japan Foods’ Japanese restaurant brands in Thailand and China.

In a Monday report, analyst Shekhar Jaiswal says he views the proposed JV positively as this will enable Japan Foods and Minor to leverage on each other’s operational strengths and industry experience, as well as their respective culinary expertise, while ensuring a much wider geographic presence for both entities.

The analyst continues to like Japan Foods for its strong restaurant franchises, ability to generate positive free cash flow (FCF) and net cash balance sheet.

However he believes profitability for the group will be kept in check over the next few quarters due to weak consumer sentiment, higher costs from launching premium restaurant concepts, as well as the rapid expansion in restaurant numbers.

“Both Japan Foods and Minor – an indirect subsidiary of Thai-listed Minor International – will have up to six months from the date of the MoU to enter into a definitive JV agreement… Minor operates brands such as Thai Express, Xin Wang Hong Kong Cafe, Poulet and Buffet Town, which are very established in Singapore and elsewhere. We expect the Thai Express brand to find favour amongst the well-travelled Japanese population who enjoy international cuisine.” notes Jaiswal.

“We remain ‘neutral’ on the stock [Japan Foods], while we assess the long-term earnings impact of the proposed JV with Minor,” he adds.

As at 11:05am, shares in Japan Foods are trading flat at 46 cents or 2.2 times FY19F book value.

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