RHB: Japan Foods-Minor proposed joint venture seen as a positive

Plastic sushi keychains at Japan-based DaisoPlastic sushi keychains at Japan-based Daiso

The proposed joint venture between Japan Foods and Minor Singapore is a positive, RHB said in a note on Monday, but it added that it was sticking with a Neutral call on Japan Foods’ shares.

Japan Foods had said on Friday that it signed a binding memorandum of understanding (MOU) with Minor Food Group (Singapore) to expand the geographical reach of their restaurant brands. Under the deal, the two will form a 50-50 joint venture company in Singapore to franchise and operate their existing restaurant brands in Japan, Thailand and China, it said in a filing to SGX on Friday.

RHB said it was upbeat on the deal.

“While the JV enables Japan Foods to expand its brands franchise in Thailand – a country where it does not have any business presence – this also fulfils its long-standing aspiration to bring regional Asian flavours to Japan,” RHB said. “Japan Foods already has some business presence in China through associate companies. However, the proposed JV with Minor should enable to it to further expand its brands’ presence in the world’s most populated country.”

RHB added that while it hadn’t yet assessed the earnings impact, it expected the deal would enable Japan Foods and Minor to “leverage on each other’s operational strengths and industry experience,” and respective culinary expertise.

On Friday, Japan Foods said it would oversee, develop and manage the joint venture’s Thai cuisine restaurant operation in Japan and provide technical support and expertise for preparing Japanese cuisine in Thailand and China.

Minor Singapore, which is an indirect subsidiary of Thailand’s Minor International PLC, will do the same for the joint venture’s Japanese cuisine restaurant operations in Thailand and China, while providing technical support and expertise on preparing Thai cuisine in Japan, the company said on Friday

But RHB kept a Neutral call and S$0.48 target price on Japan Food shares.

“We continue to like Japan Foods’ strong Japanese restaurant franchise, ability to generate positive free cash flow, and net cash balance sheet,” RHB said. “However, weak consumer sentiment, higher costs from launching premium restaurant concepts, and rapid expansion in restaurant numbers is expected to keep profitability in check over the next few quarters.”

Minor Singapore’s brands in Singapore include Thai Express, Xin Wang Hong Kong Cafe, Poulet, Buffet Town and Kiseki Japanese Buffet Restaurant, it said.

Japan Foods’ brands include Ajisen Ramen, Menya Musashi, Osaka Onsho, Shitamachi Tendon Akimitsu and Konjiki Hototogisu, it said.

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