Japan Foods Holding Ltd

[touzi]

- Strong brands, steady growth in sales
- zero debt, consistent high >20% ROE
- I think its undervalued @ 60c.
- High PB ratio not so relevant for a service company with few assets and strong brands
- 4% div yield with committed 40% div payout
- limited competition

What can go wrong?

Limited competition? I think competition is intense in the F&B industry, even within the Japanese Food sector.

[thor666]

- Strong brands, steady growth in sales
- zero debt, consistent high >20% ROE
- I think its undervalued @ 60c.
- High PB ratio not so relevant for a service company with few assets and strong brands
- 4% div yield with committed 40% div payout
- limited competition

What can go wrong?

Off the last agm discussion, what I can recall:
- management did share that the ceo actually does a lot of hands on, there is succession risk (though mr kenichi-San is in excellent health as we saw him)
- jfh is deliberately focusing on Singapore market. They've closed some overseas outlets last year. Risk if Singapore market experiences downturn.
- quality of food at some outlets may be inconsistent imo.
- rising labor costs. Take a look at the salaries they are offering at the posters outside their outlets. It's not low as what people imagine it to be.

Even with above points, I remain vested in jfh. Solid strategy, down to earth business that captures the mass market well. I do think it is undervalued considering that related peers are trading at similar or higher P/E ratios, but more leveraged than jfh and less profit margins. This is a long and boring slow growth stock. Next year full results will prove whether my analysis is correct.

[Muser]

- Strong brands, steady growth in sales
- zero debt, consistent high >20% ROE
- I think its undervalued @ 60c.
- High PB ratio not so relevant for a service company with few assets and strong brands
- 4% div yield with committed 40% div payout
- limited competition

What can go wrong?

Limited competition? I think competition is intense in the F&B industry, even within the Japanese Food sector.

Given the diversified brand portfolio of JFL and its ability to switch brands/outlets which don't work, what are the real competitive threats?

[Ferns]

RE&S is a real threat. Unfortunately it isn't listed.

I go to Nex regularly and always see the Shokutsu 10 many times more crowded than Ajisen Gourmet Town.

While JFL can switch brands and outlets, it tends to be either ramen or Gyoza.

What RE&S can do that JFL cannot is diversification. Shokutsu 10 is an example of that. Breadtalk's ability to provide ramen play, toast box, din tai fung, etc is another example.

The good thing about JFL, however, is simplicity. It can afford to work on its overseas sub-franchise strategy.

(Vested)

[Tiggerbee]

There's also the Ministry of Food group of restaurants. The Jap restaurant group is very good at creating new brands and is one of the fastest expanding Japanese restaurant chain.

On the Breadtalk group, it's only doing so so for its Toastbox, Breadtalk and Food Republic brands. The margins for Ding Tai Feng is also razor thin due to franchising costs. And the other brands like Ramen Play are incurring operating losses.

[Muser]

RE&S & Ministry of Food are threats, though unlisted.

Breadtalk is interesting, but with poor financials - much lower ROE ~14% and >100% debt to equity.

Tung Lok has been making losses, with huge debt and stagnant revenue growth.

JFL, with great brands & financials, seems to be an exception

[opmi]

I think creative eateries food concepts (Sukiya, Xiao la Jiao etc) not bad. But quality like dropped. Their new Boston seafood shack cannot make it.

paradise inn group also ramped up quite a lot.

Actually I like TW Wowprime best. Their JV WITH PUTIEN, Su food in Raffles City. Heard it is quite value for money. If wowprime can come to SG with same service level, breadtalk can stand one side.


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[Ferns]

I think creative eateries food concepts (Sukiya, Xiao la Jiao etc) not bad. But quality like dropped. Their new Boston seafood shack cannot make it.

paradise inn group also ramped up quite a lot.

Actually I like TW Wowprime best. Their JV WITH PUTIEN, Su food in Raffles City. Heard it is quite value for money. If wowprime can come to SG with same service level, breadtalk can stand one side.


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I've tried Su food 2 times, it's really value for money!

[thor666]

http://infopub.sgx.com/Apps?A=COW_CorpAn...Fq5oaCwrqA

Results are not good. Net profit halved due to increases in costs, notably from salaries.

On the basis of similar revenue, f&b is really impacted by labor and cost control.

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[thor666]

Full year results out. Good results considering the headwinds.

(Vested)

http://infopub.sgx.com/Apps?A=COW_CorpAn...3edb69dd2e

SINGAPORE, 29 May 2015 – Japan Foods Holding Ltd. (“Japan Foods” and together with its subsidiaries, the “Group”), a leading Singapore-based Japanese restaurant chain, has achieved net profit of S$4.7 million on the back of S$62.7 million in revenue for the year ended 31 March 2015 (“FY2015”).
In FY2015, the Group’s gross profit rose 2.1% to S$52.3 million in tandem with the increase in gross profit margin, which rose 1.8 percentage points from 81.6% in the financial year ended 31 March 2014 (“FY2014”) to 83.4% in FY2015. This was mainly due to better control of raw material costs arising from efficient use of raw materials andcost savings from self-produced noodles, bulk purchase discount, price revision of menu items and the appreciation of the Singapore dollar against the Japanese yen.
However, the Group incurred higher expenses during the financial year mainly in relation to its network expansion in Singapore, which increased from a total of 44 restaurants and outlet as at 31 March 2014 to 46 restaurants and outlet as at 31 March 2015, as well as monetary incentives given to staff to increase retention rate amidst a tight labour market.
Selling and distribution expenses, which formed 70.9% of the Group’s revenue in FY2015, rose 12.1% to S$44.4 million mainly attributable to a S$1.0 million hike in employees’ salaries due to an increase in headcount for both part-time and full-time employees and higher base salaries as well as a one-off incentive payment of S$0.4 million to retain existing staff. The Group also incurred higher rental costs because of rental revisions for restaurants located at existing malls and additional rental costs for new store openings.
As a result, the Group’s net profit attributable to equity holders of the Company declined by 35.2% to S$4.7 million in FY2015.
NAV per share as at 31 March 2015 was 17.57 Singapore cents as compared to 16.93 Singapore cents as at 31 March 2014. At the end of FY2015, the Group’s cash position remained healthy with cash and cash equivalents of S$15.9 million with no borrowings.
According to Executive Chairman and CEO of Japan Foods, Mr Takahashi Kenichi, the first half of FY2015 was particularly challenging for Japan Foods because of intense competition in the F&B scene, which was further compounded by the manpower shortage that resulted from the government imposed reduction in the foreign labour quota. However the Group enjoyed better performance in the second half with net profit increasing 61.1% from S$1.8 million in the first half to S$2.9 million in the second half of FY2015.
He said: “Despite the challenges in the first half, we were able to end the financial year with healthy sales mainly because of measures we had taken since FY2014 to mitigate such issues, such as introducing an iPad self-ordering system, expanding the capacity of our central kitchen, as well as offering monetary incentives to retain existing staff. In FY2015, in addition to higher hourly wages and a retention bonus for eligible staff, the management team pitched in during the weekends to help out with service at busy outlets.

“Although our earnings are down year-on-year, we are optimistic that our expanded restaurant network will contribute to our top and bottom lines in the longer term. The Group is confident that the variety of Japanese cuisine concepts that we offer within our extensive brand portfolio remains attractive to a broad range of customers and our constant effort in responding to customers’ taste and demand will yield fruitful returns.” Subject to approval by shareholders at the forthcoming Annual General Meeting in July 2015, the Group has proposed a final dividend of 1.27 Singapore cents per share. This will bring the total dividend payout in FY2015 to 2.00 Singapore cents per share, taking into account the interim dividend of 0.73 Singapore cents per share which was paid on 28 November 2014. This represents a total dividend pay-out of S$3.5 million, or 73.5% of net profit, in FY2015, which is higher than the Group’s dividend policy to distribute not less than 40.0% of the Group’s audited consolidated net profits attributable to shareholders annually.


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