RHB started Japan Foods Holding (JFH) at Buy with S$0.63 target price as it expects the restaurant operator’s “multi-brand” model to deliver strong profit growth.
“We expect JFH to deliver 10-15 percent annual profit growth with the addition of new restaurants, launching of new brands, and continued focus on cost control, aided by a recovery in consumer sentiment,” RHB said in a note on Friday.
JFH’s brands include seven franchise brands from Japan, such as Ajisen Ramen, Osaka Ohsho and Menya Musashi, as well as five self-developed brands, including Japanese Gourmet Town and Fruit Paradise, and one franchise brand from Malaysia, New ManLee Bak Kut Teh.
“With its large portfolio of brands, JFH is able to mix and match food & beverage (F&B) brands, and do so quickly in response to market demand,” it said. “The extensive brand portfolio also enables the group to quickly replace brands that are not doing well with ones that can yield better results. This strategy has made JFH very popular with landlords and has allowed it to maximise its revenue on a per restaurant basis.”
RHB noted that JFH has expanded aggressively in Hong Kong and China, with eight restaurants in Hong Kong and 10 in China, while the company is also in talks about setting up a joint venture in Indonesia.
The 4 percent dividend yield is the highest among JFH’s Singapore-listed peers, RHB noted, adding that there was potential upside to the dividend yield.
The stock’s valuations are “undemanding,” RHB said, noting it was at fiscal 2019 price-to-earnings of 14.8 times and ex-cash, it’s at 11.3 times, a significant discount to the industry average of 19.5 times.