JAPAN FOODS HOLDING LTD. (SGX:5OI)
Japan Foods - Preparing For An Uncertain FY21
- Although the Government’s announced support measures will assist in cushioning the short-term impact, the adoption of safety measures related to social distancing at Japan Foods (SGX:5OI)’s outlets and weak consumer discretionary spending will dampen prospects and curtail FY21 (2020 Apr to 2021 March) growth. However, the long-term trend seems positive, as its net cash balance sheet should enable Japan Foods to enhance delivery services and refocus on growth when competition and costs are lower in FY22.
- NEUTRAL with new SGD0.33 Target Price from SGD0.35, 0% upside and 1.5% FY21F (Mar) yield.
Earnings pressure to exist in FY21.
- Although Japan Foods’ 59 restaurants have resumed full operations with dining-in permitted by the Government, additional costs of imposing safety measures at its outlets – amidst the COVID-19 pandemic – and weak consumer spending creates impairment risks related to non-performing outlets.
- Unless existing support measures are extended by the Government, the cushion against the fall in revenue provided by the Job Support Scheme and rental relief should disappear by end 1HFY21.
- We believe Japan Foods may rationalise its restaurants portfolio and the number of outlets in FY21. Earlier planned expansions in Japan and other ASEAN markets will also be delayed. We lower FY21F and FY22F profits by 42% and 26%.
Expecting lower dividends.
- During FY14-19, Japan Foods paid out 60-90% of earnings as dividends. In FY20, despite weak earnings, the group paid c.200% of earnings as dividends to reward its shareholders. See Japan Foods Dividend History.
- Although Japan Foods’ cash position remains healthy, we expect a lower dividend payout of 75% for FY21, implying a dividend yield of only 1.5% – this is as the group tries to survive in an uncertain economic environment.
- We expect dividend yields to gradually increase once earnings recovery kicks in FY22.
Staying NEUTRAL, normalised earnings to return in FY22F.
- Our SGD0.33 Target Price, which is derived by using an average of P/E, P/BV, EV/EBITDA, and DCF of FCF captures the near-term earnings headwind. Japan Foods has a strong net cash balance sheet – net cash is 36% of its market cap. This should enable the group to sustain operations beyond the weak FY21F period.
- In the next 1-2 years, we expect a good number of food & beverage players to exit operations in Singapore, therefore reducing competition for Japan Foods.
- See Japan Foods Share Price; Japan Foods Target Price; Japan Foods Analyst Reports; Japan Foods Dividend History; Japan Foods Announcements; Japan Foods Latest News.
Shekhar Jaiswal
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-07-22
SGX Stock
Analyst Report
0.33
DOWN
0.350
