JAPAN Foods Holding : 5OI -2.3% recorded net profit of S$3.2 million for the first nine months of FY2023, up 94.5 per cent from S$1.7 million the previous year, on the back of higher revenue.

 

The Catalist-listed restaurant chain operator on Friday (Feb 10) said revenue grew 54.1 per cent year on year to S$58.4 million from S$37.9 million. 

 

This was mainly attributed to positive responses to the group&rsquo s expanded Halal segment, and boosted further by the lifting of Covid-19-related restrictions. Japan Foods now has 21 restaurants that are Halal-certified and believes this will continue to be a growing segment for the group. 

 

Gross profit grew by 54.7 per cent to S$49.4 million from S$31.9 million previously, while gross profit margin rose slightly by 0.3 percentage point to 84.6 per cent. 

 

Overall expenses rose in line with revenue growth and increased business activities, with selling and distribution expenses up 26.9 per cent to S$41.7 million due to higher manpower costs, utilities and the depreciation of right-of-use assets.  

 

Other income fell by 89.6 per cent to S$0.7 million from S$6.6 million, in the absence of rental rebates as well as grants under the government&rsquo s Jobs Support Scheme. 

 

Japan Foods&rsquo share of profit of its associated companies also fell by 54.3 per cent to S$139,000 from S$304,000 the previous year, mainly due to losses incurred by associated companies in China due to the country&rsquo s Covid restrictions. 

 

The response to the group&rsquo s recent commencement of operations at its store in Japan &ndash which is franchised and operates through its joint venture with Minor Food Group &ndash was not within its expectations, added the group.

 

Japan Foods said it expects the overall food and beverage industry as well as the group&rsquo s topline to reflect an increase in dine-in customers, amid Singapore&rsquo s normalisation post Covid-19. It, however, expects the operating environment to remain challenging in the near term due to intense competition, manpower shortages, an uncertain economic outlook and higher cost of operations. 

 

&ldquo To cushion our bottom line against rising costs, we will intensify our efforts to manage our expenses and maintain our healthy balance sheet, while continuing to establish a compelling portfolio of brands, concepts and locations that appeal to customers,&rdquo the group said.

 

RHB Group Research is keeping its &ldquo buy&rdquo recommendation on Japan Foods Holding with an unchanged target price of 60 cents, following SingStat&rsquo s latest retail numbers, which saw Singapore&rsquo s restaurant industry maintaining its growth momentum in October, as it registered 61.1% y-o-y sales growth for the month.

 

Analyst Shekhar Jaiswal says: &ldquo While we expect the rate of growth to moderate, we still expect the industry to deliver positive growth in 2023. Japan Foods&rsquo strong balance sheet, which has helped it to survive the pandemic, its ability to sustain strong gross margins, and its recent expansion into halal restaurant brands should continue to support strong profit growth during FY2023 to FY2025.&rdquo

 

Despite the current high inflationary background, the group&rsquo s margins have held up well. Jaiswal says, &ldquo We believe Japan Foods&rsquo standardised food inputs across all its operations, an efficient central kitchen operation, and improved labour productivity should enable it to maintain its margins.&rdquo

 

In the group&rsquo s 1HFY2023 ended September, gross margins widened to 84.7% from 83.8% in 1HFY2022, despite inflation. To offset some rise in input costs, the group is gradually passing on higher costs to customers by raising its prices as the demand remains strong.

 

Meanwhile, Japan Foods has expanded its halal restaurant offering and grown the number of its halal restaurants from six in 1HFY2022 to 12 in 1HFY2023. It also expanded its portfolio of halal brands to five as of October.

 

Its halal restaurant contributed a net revenue increase of $6.4 million in 1HFY2023 to $9.6 million and accounted for 25.2% of the group&rsquo s total revenue for the period.

 

&ldquo We see this segment as an untapped market that offers strong growth potential,&rdquo says Jaiswal.

 

In FY2022, Japan Foods paid 100% of its net profit as dividends, which the analyst expects the group to maintain in FY2023 to FY2025, given its strong performance. This implies a dividend yield of over 5%, which is higher than what the Singapore market offers.

 

Jaiswal also views the stock&rsquo s ex-cash FY2023 P/E of 12x as compelling, given its robust growth potential.

 

JAPAN Foods Holdings recorded a net profit of S$2.3 million for the first six months of FY2023, reversing its net loss of S$1.6 million recorded in the equivalent period a year ago due to a significant increase in revenue. 

 

The Catalist-listed restaurant chain operator on Wednesday (Nov 9) announced a 79 per cent year-on-year growth in revenue to S$38 million from S$21.2 million. Its topline was driven largely by relaxed Covid-19 dining measures and a net revenue growth of S$6.4 million in its new segment of halal eateries.

 

Its four flagship brands also saw net revenue increases for the period, with Ajisen Ramen recording the largest at S$3.3 million. Menya Musashi, Konjiki Hototogisu, and Osaka Ohsho posted net increases of S$0.9 million, S$1.6 million, and S$1.1 million respectively.

 

Restaurants operating under other brands booked a S$3.8 million net increase in revenue. 

 

While its gross profit grew 80.9 per cent year on year to S$32.2 million from S$17.8 million, Japan Foods : 5OI 0%&rsquo other income decreased by 88.1 per cent to S$0.5 million from S$4.1 million in H1 FY2022. This was due to lower government support grants and rental concessions from landlords. 

 

Despite markedly higher selling and distribution expenses of S$27 million compared to S$21.3 million the year before, the group&rsquo s gross profit margin grew 0.9 percentage point to 84.7 per cent due to the absence of discounts granted for takeaway orders the previous year. 

 

Earnings per share for the half-year stood at 1.34 cents, and an interim dividend of 1 Singapore cent was declared. 

JAPAN Foods Holding : 5OI 0%&rsquo s subsidiary, Japan Foods Enterprises (JFE), is suspended from applying for and renewing work passes as the Ministry of Manpower (MOM) has launched an investigation into its hiring and payroll practices involving foreigners.

 

Announcing this in a bourse filing on Tuesday (Oct 4), the Catalist-listed restaurant operator said the company understands the investigation relates to &ldquo certain past hiring and payroll practices&rdquo , which have since ceased.

 

&ldquo As the investigation is still ongoing, until further notice from the MOM, JFE has been suspended from applying new work passes and renewing existing work passes,&rdquo the group said.

 

To deal with the suspension, Japan Foods Holding said it would have to streamline operational work-flow at its outlets and employ more part-timers and contract staff. JFE will also work on &ldquo right-balancing&rdquo its workforce, it added.

 

But these do not mean that any of the group&rsquo s existing operating outlets will have to be shut temporarily, it stated.

 

It will, meanwhile, &ldquo cooperate fully&rdquo with MOM&rsquo s investigation, it said, adding that the Board will monitor its progress and update shareholders as and when material developments arise.

 

Takahashi Kenichi founded Japan Foods Holding in 1997, and is executive chairman and chief executive officer of the group. Brands under the company include Afuri, Ajisen Ramen and Fruit Paradise.

DESPITE domestic and international restrictions during the Covid-19 pandemic, Singapore restaurant operator Japan Foods Holding turned a profit and stayed debt-free &ndash and even expanded its store count &mdash with the help of a lucrative foray into the halal dining segment.

 

Does the management&rsquo s approach sound like a traditional way to run a business?

 

&ldquo Yeah, I don&rsquo t think so. Not traditional,&rdquo said its colourful chief executive and chairman, Kenichi Takahashi, who founded Japan Foods in 1997 to open an Ajisen Ramen franchise in Singapore.

 

Under his leadership, Japan Foods has expanded its business in not just the pandemic but also downturns such as the Asian financial crisis and the global financial crisis in 2009, when Japan Foods made its debut on the Catalist board.

 

When asked about corporate succession plans, engineer-turned-restaurateur Takahashi, who spoke in a mix of English and Japanese, joked that he cannot afford to retire as yet.

 

But he told The Business Times that the eventual handover should be a cinch: &ldquo Our company already has successful branding in Singapore. Also, Japanese F& B restaurants know our company.&rdquo

 

Halal market

 

Japan Foods broke into the halal market with its Tokyo Shokudo ramen brand, which opened in Tampines Mall in November 2020. As of end-June, it had 11 halal-certified restaurants spread across 3 culinary specialities: ramen, teppanyaki and yakiniku.

 

The group also has a no-pork, no-lard Japanese-style Western brand, Tokyo Kitchen, that is awaiting halal certification, and Takahashi added that &ldquo now we are planning 1 more new halal concept&rdquo .

 

Halal brands in Singapore made up 20.5 per cent of revenue in FY2022 ended March. Takahashi aims to double that to 40 per cent in the next few years.

 

He is also eyeing halal expansion into neighbouring Malaysia and Indonesia &mdash and &ldquo even in future the Middle East, if I have a chance and I can get a good partner&rdquo .

 

Given his outlook on demand for halal cuisine, one may wonder why Japan Foods took more than 2 decades to enter the segment.

 

When asked, Takahashi told BT that the team has had to build up its experience and brand footprint &ndash including its research and development (R& D) expertise &mdash since Islamic requirements limit the availability of acceptable ingredients such as shoyu (soya sauce).

 

&ldquo How to make a good taste, same as non-halal brands, is our most challenging point,&rdquo he said.

 

Cost discipline

 

Japan Foods posted a net profit of S$3.2 million for FY2022, down 10.8 per cent year on year on waning pandemic-related support such as government wage subsidies. Revenue for the period, however, was up 7.1 per cent to S$54.6 million thanks to growth in the halal segment.

 

The company improved on these results further with a net profit of S$1.4 million for the first quarter ended Jun 30, 2022, reversing a net loss of S$1.2 million in the year-ago period.

 

Revenue for the 3 months nearly doubled year on year to S$18.8 million, from S$9.8 million previously, which was attributed to both relaxed Covid-19 dining restrictions and &ldquo the positive response to the group&rsquo s expanded halal segment&rdquo .

 

&ldquo Our shops have not-so-big space and very high turnover, and are making sales. The material cost is lower and rental fees are also not so heavy compared with Chinese restaurants and others, so the damage was lower than other companies,&rdquo Takahashi said, adding that he also took the opportunity to pick up retail spaces from F& B operators that went belly up.

 

Takahashi also attributed cost savings to an 18,000 sq ft central kitchen in Kampong Ampat in Tai Seng, where machines produce noodles, gyoza, and soup.

 

The central kitchen cannot serve Japan Foods&rsquo halal outlets, which prepare dishes on site, but BT understands management is looking into setting up a halal-certified facility too.

 

All the same, the latest business update nodded at the inflationary pressures facing the entire F& B industry.

 

&ldquo The group expects the next 12 months to be challenging,&rdquo Japan Foods said in its business outlook, while citing factors such as &ldquo higher cost of operations&rdquo .

 

To further manage manpower costs, Japan Foods may streamline staffing in its restaurant operations, and lean more heavily on the central kitchen, said Takahashi.

 

He noted that rental fees are also putting the squeeze on the group. Current lease liabilities hit S$17.4 million as at Mar 31, 2022, up from S$15.6 million before, while rental concessions from landlords decreased. The price of raw materials, such as chicken, and transportation, has also increased.

 

&ldquo If we cannot absorb, we will up the selling price,&rdquo he said, but added that &ldquo we can still absorb more&rdquo .

 

Eastward ho!

 

Japan Foods is also set to ramp up overseas expansion, after it had to put on ice a partnership inked with Thai-owned Minor Food Singapore in 2018.

 

Japan Foods and Minor agreed to develop, franchise, and manage each other&rsquo s Thai and Japanese restaurant brands in Japan, Thailand, and China, in a 50-50 JV. (In an exclusion under the deal, ramen restaurants in China are off limits without Japan Foods&rsquo say-so.)

 

Takahashi said the JV secured the lease to a store in Tokyo&rsquo s trendy Shibuya district before the pandemic, and has held on to it despite not being able to open.

 

Japan Foods now plans to open the first Thai-concept eatery in Tokyo in August, and will focus on the Japan market before expansion continues in the other 2 countries. The JV company is in talks for a second location in Tokyo, and both outlets will offer Thai cuisine under an undisclosed brand.

 

The new outlets will add to Japan Foods&rsquo overseas presence through its associates, which operate 12 restaurants in Hong Kong, 9 in mainland China, and 1 in Indonesia.

 

Cash is king

 

Even as other Singapore-listed F& B peers have made headlines in recent months for their debt troubles and financial woes, Japan Foods stands out for the absence of long-term debt on the balance sheet &ndash thanks to Takahashi&rsquo s conservative dislike of being in hock.

 

The lack of debt and the company&rsquo s strong cash flow has made the stock a steady dividend payer.

 

Japan Foods paid a dividend of 1.85 Singapore cents a share in FY2022, representing 99.8 per cent of earnings. The payout was 120.1 per cent of earnings in FY2021 and 214 per cent in FY2020.

 

That&rsquo s as Japan Foods announced in 2021 its commitment to paying out at least 100 per cent of annual net profit to shareholders, up from a minimum of 50 per cent before.

 

&ldquo We want to try to give a constant return to the shareholder and with the cash flow we have, we believe we can do that for the foreseeable future,&rdquo said Kenneth Liew, the company&rsquo s chief financial officer. &ldquo F& B is a cash business. We have already accumulated quite a bit of cash reserves before the pandemic, and we did not invest heavily in capital investments.&rdquo

 

Noting that the stores and central kitchen are all rented to save on capex, he added: &ldquo You&rsquo ll see that the operating cash flow that we&rsquo ve generated is a lot more than profit.&rdquo

 

Japan Foods recorded S$25.4 million in net cash from operating activities in FY2022, up from S$19.5 million in the year-ago period. Cash and bank balances stood at S$23.2 million as at end-March.

 

RHB analyst Shekhar Jaiswal wrote in a report on Jul 4: &ldquo Once we get past the near-term economic weakness, this large cash balance will provide it with sufficient firepower to aggressively expand the number of outlets in Singapore or regionally, if needed.&rdquo

 

RESTAURANT operator Japan Foods : 5OI +1.19% on Thursday (Jul 21) reported net profit of S$1.4 million for the first quarter ended Jun 30, reversing from its previous year&rsquo s loss of S$1.2 million on a surge in revenue.

 

Revenue for the quarter grew 91.8 per cent to S$18.8 million from S$9.8 million the year before. This was attributed to the positive response to the group&rsquo s expanded halal segment, which was further boosted by the recent lifting of Covid-19 measures including capacity limits and restrictions on dining in.

 

Gross profit rose 93.6 per cent to S$15.9 million in the latest quarter from S$8.2 million, while gross profit margin grew 0.8 percentage point to 84.8 per cent.

 

An S$84,000 share of loss of associated companies was recorded in the latest quarter compared to a S$125,000 share of profit the previous year, mainly due to losses by Japan Foods&rsquo associated companies in China as a result of the country&rsquo s &ldquo strict zero-Covid-19 stance&rdquo during the period.

 

In its business update, Japan Foods said it is expecting the next 12 months to remain challenging as Singapore&rsquo s food and beverage (F& B) industry continues to face a manpower crunch.

 

Based on the group&rsquo s observations, this has led to high demand and competition for service staff that has intensified since the lifting of Covid-19 related restrictions. It is also anticipating higher cost of operations due to inflationary pressures and an uncertain economic outlook.

 

The group nonetheless expects continued growth in its halal segment, and said it is working towards opening its first Thai concept restaurant in Tokyo in August this year.

 

JAPAN Foods Holding : 5OI 0% on Wednesday (May 25) posted net profit of S$4.9 million for the 6 months ended March 2022, representing a 46.4 per cent increase from S$3.3 million in H2 FY2021.

 

Revenue for the half-year period grew 2.9 per cent to S$33.4 million compared to S$32.5 million the previous year, as revenue from the group&rsquo s new halal restaurant brand Tokyo Shukudo increased after an expanded number of outlets. This more than offset lower revenue generated by the other restaurant brands under the group&rsquo s portfolio.

 

Gross profit for H2 grew 3.2 per cent on-year to S$28.4 million from S$27.6 million, while the group&rsquo s gross profit margin increased 0.2 percentage point to 85.1 per cent due to price adjustments in certain menu items.

 

Higher other income was also recorded on the back of rental support payouts.

 

Selling and distribution expenses and administrative expenses both grew by 2 per cent and 22.7 per cent, respectively, mainly due to higher manpower costs.

 

Over H2, the group&rsquo s share of loss of associated companies grew to S$176,000 from just S$2,000 the previous year. This was attributed to higher losses incurred by its Menya Musashi brand restaurants in China and Hong Kong as a result of Covid-19 movement restriction measures which had been implemented since February 2022.

 

Earnings per share for H2 stood at 2.79 Singapore cents, compared to 1.91 cents the previous year.

 

The latest set of results brings the group&rsquo s FY2022 net profit to S$3.2 million, down 10.8 per cent from S$3.6 million in FY2021. 

 

Revenue for the full year grew 7.1 per cent to S$54.6 million from S$51 million previously, due to the seasonally stronger second-half performance.

 

A final dividend of 1.35 Singapore cents per share has been proposed. Together with the interim dividend of half cent paid out in December 2021, this brings the total dividend for FY2022 to 1.85 cents per share, down from 2.5 cents in FY2021.

 

Commenting on the latest set of results, Japan Foods chief executive and chairman Takahashi Kenichi said the group&rsquo s performance and responses to its halal brands have been &ldquo extremely&rdquo encouraging, and that the group has put in more resources to grow this market segment.

 

&ldquo At the same time, we are expanding our network and brand portfolio to capture the recovery and upswing in business and leisure activities in line with the relaxation of Covid-19 restrictions,&rdquo he added.

Company Update:  30 June 2021

 

Emerging stronger and primed for expansion

• Surviving the pandemic.  FY2021&rsquo s revenue declined 25% YoY to S$51mn from S$68.4mn in FY2020. Despite the weaker top line, net profit rose 256% YoY to S$3.6mn, from S$1.0mn in FY2020. The increase in profit was attributable to other income rising to S$10.9mn from S$606k in the prior year due to government grants and rental concessions given to businesses in light of Covid.
• Never giving up.  JFOODS operated 50 restaurants in Singapore as of end-March 2021, a decline from 59 as of end-March 2020. This drop was mainly due to the impact of Covid-19, in which the dip in dine-ins caused many restaurants to close. The break of dawn brings new opportunities, which the group has taken advantage of to expand into areas such as Halal-certified restaurants.
• Upgrade to OUTPERFORM and higher TP of S$0.65.  For many who survived, we expect them to thrive. JFOODS is in a favourable position to grow and expand its market share given its flexible 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. We thus upgrade to OUTPERFORM and raise our TP to S$0.65.

CATALIST-LISTED restaurant operator Japan Foods returned to profitability in the second half-year ended March 31, 2021, reporting S$3.3 million in earnings as opposed to a loss of S$0.5 million in H2 FY2020.

 

The group has proposed a final dividend of 1.75 Singapore cents per share, up from 0.25 cent for FY2020. Together with the interim dividend of 0.75 cent per share paid out in December 2020, this brings the total dividend to 2.50 cents per share, or 120.1 per cent of FY2021 net profit.

 

In its results filing on Tuesday, Japan Foods attributed its improved H2 performance to the easing of dining restrictions at the end of Singapore' s " circuit-breaker" period last year.

 

Revenue for H2 edged up 0.5 per cent to S$32.5 million on-year from S$32.3 million, due to the end of the " circuit-breaker" period and subsequent reopening of all the group' s restaurants from June 19, 2020.

 

Overall group sales performance further improved when more restrictions were relaxed on Dec 28, 2020 to permit larger groups of eight to dine in, said the group.

 

Gross profit margin for the half-year period improved to 84.9 per cent, from 84.2 per cent the previous year.

 

Japan Foods noted in its results announcement that post the " circuit-breaker" period, its restaurants located in heartland malls had generated higher sales revenue over H2, while those located in the Central Business District and near the Orchard Road district had yet to recover to pre-Covid-19 levels due to lower footfalls in these areas.

 

Executive chairman and chief executive Takahashi Kenichi said this was because most workers were still working from home and had yet to return to their offices as at March 31 in large numbers.

 

" We believe that working remotely may continue to be the new norm even after the COVID-19 pandemic is over and we will seek out opportunities according to trends that emerge from this situation to drive growth for our domestic market," said Mr Kenichi.

 

For FY2021, the group' s earnings more than tripled year on year to S$3.6 million from S$1 million. This came despite a 25.4 per cent drop in full-year revenue to S$51 million, from S$68.4 million in FY2020, cushioned by government grants and rental concessions.

 

Between March 1 and 2, JB Foods non-independent, non-executive director and vice-chairman Sam Goi Seng Hui acquired 222,700 shares of the listed company for a consideration of S$132,343.

 

At an average price of 59.4 cents per share, this increased his total interest in the major cocoa ingredients producer from 24.28 per cent to 24.35 per cent.

 

On Feb 25, JB Foods reported FY20 (ended Dec 31) revenue of US$417.8 million, an 18.5 per cent increase from FY19, mainly driven by higher shipment volume for the cocoa ingredients, and the increase in the average selling price of cocoa ingredients due to the increase in the price of cocoa beans.

 

Profit after tax of US$19.3 million was down 26.3 per cent from FY19, attributed to a lower profit margin contributed by an increase in cocoa bean costs arising from the introduction of the living income premiums in the Ivory Cost and Ghana.