• NEUTRAL, new TP of SGD0.29 from SGD0.30, 3% downside with c.4% FY24F (Mar) yield. Japan Foods’ 9MFY24 reported PATMI is well below our estimate, amid higher-than-estimated tax expenses. It continues to ramp up its outlet count, especially the halal-concept restaurants which have performed better than its regular outlets. We maintain our FY24 estimates, as we expect some near-term improvement in consumer spending amidst recovering domestic economic growth and the supportive measures announced in the 2024 Singapore budget.

• 9MFY24 operating numbers tracked estimates, but PATMI missed amidst higher tax expenses. JFOOD’s 9MFY24 revenue of SGD65m (+12% YoY) accounted for 78% of our FY24 estimate. The growth was driven by expanded halal offerings and a higher number of operating restaurants. Its gross profit of SGD55m (+12% YoY) was in line with our estimate, as the gross margin is tracking our projection. Meanwhile, its PBT of SGD934k (-77% YoY) accounted for 74% of our FY24 estimate. JFOOD’s PATMI turned around to a profit of SGD587k in 3QFY24, from a loss of SGD130k in 2QFY24. We noticed a sharp rise in tax expenses in 3QFY24, which led to the 9MFY24 reported PATMI acccounting for only 65% of our full-year estimate.

• Outlet expansion continues; the group remains focused on growing its number of halal-concept restaurants. In 3QFY24, JFOOD added nine new restaurants, of which six were halal-concept restaurants. The group also shut down three non-halal restaurants during the quarter. This led to a net addition of six restaurants in the quarter, and a total restaurant count of 78. 38 out of the 78 restaurants are now halal restaurants (48% of the total). In its 1HFY24 results announcement, JFOOD mentioned that c.45% of its revenue is now accrued from halal-concept restaurants (vs c.25% in 1HFY23). JFOOD aims to capture a bigger share of the halal restaurant market, and it will continue to explore opportunities to open more restaurants under its existing halal concepts as well as launch new concepts.

• No change to estimates; decrease in TP due to ESG score. Our TP continues to be derived by using an average of forward P/E, P/BV, EV/EBITDA, and DCF of adjusted free cash flow. We lower our TP as we now ascribe a 2% discount to the JFOOD’s fair value, given that its unchanged ESG rating of 3.0 is now below the country median of 3.1 (which was 3.0 previously).

• Upside risks should come from the continued strong performance of its halal- concept restaurants. Downside risks would arise from increased competition in the F&B industry, a manpower crunch, and the increasing cost of operations due to inflationary pressures.

Source: RHB Research - 22 Feb 2024