Japan Foods Holding
Price target:
RHB Group Research ‘buy’ 60 cents
Retail sales to remain strong in 2023
RHB Group Research is keeping its “buy” recommendation on Japan Foods Holding with an unchanged target price of 60 cents, following SingStat’s latest retail numbers, which saw Singapore’s restaurant industry maintaining its growth momentum in October, as it registered 61.1% y-o-y sales growth for the month.
Analyst Shekhar Jaiswal says: “While we expect the rate of growth to moderate, we still expect the industry to deliver positive growth in 2023. Japan Foods’ strong balance sheet, which has helped it to survive the pandemic, its ability to sustain strong gross margins, and its recent expansion into halal restaurant brands should continue to support strong profit growth during FY2023 to FY2025.”
Despite the current high inflationary background, the group’s margins have held up well. Jaiswal says: “We believe Japan Foods’ standardised food inputs across all its operations, an efficient central kitchen operation, and improved labour productivity should enable it to maintain its margins.”
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In the group’s 1HFY2023 ended September, gross margins widened to 84.7% from 83.8% in 1HFY2022, despite inflation. To offset some rise in input costs, the group is gradually passing on higher costs to customers by raising its prices as the demand remains strong.
Meanwhile, Japan Foods has expanded its halal restaurant offering and grown the number of its halal restaurants from six in 1HFY2022 to 12 in 1HFY2023. It also expanded its portfolio of halal brands to five as of October.
Its halal restaurant contributed a net revenue increase of $6.4 million in 1HFY2023 to $9.6 million and accounted for 25.2% of the group’s total revenue for the period. “We see this segment as an untapped market that offers strong growth potential,” says Jaiswal.
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In FY2022, Japan Foods paid 100% of its net profit as dividends, which the analyst expects the group to maintain in FY2023 to FY2025, given its strong performance. This implies a dividend yield of over 5%, which is higher than what the Singapore market offers.
Jaiswal also views the stock’s ex-cash FY2023 P/E of 12x as compelling, given its robust growth potential. — Samantha Chiew
Yangzijiang Financial
Price target:
CGS-CIMB Research ‘add’ 64 cents
Deeply undervalued
Yangzijiang Financial Holdings (YZJFH) is “deeply undervalued” but its business could hit a trough in the current 2HFY2022 and heading into 1HFY2023, given its loan exposure to China’s real estate which has added to the company’s non-performing loans, say CGS-CIMB Research analysts Izabella Tan and Lim Siew Khee.
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In a Dec 5 note, Tan and Lim maintained their “add” call on YZJFH but with a lower target price of 64 cents from 74 cents. The new target price represents an 85.5% upside against a traded price of 34.5 cents.
Real estate loans accounted for some 32% of YZJFH’s debt portfolio as at end-1HFY2022 in June. Gross non-performing loan (NPL) ratio spiked to 30.8% as at end-3QFY2022 in September, more than double the 14.4% average over FY2018-2021.
YZJFH has a 2.3x coverage ratio backed by land/building collaterals as at end-1HFY2022, and had made a provision for loan losses of $14.8 million in 3QFY2022. The analysts think sustained Covid-19-related lockdowns could prolong lacklustre home sales and further dampen property values in 1HFY2023.
“We believe YZJFH has 80% of its debt investments slated to mature by 1HFY2023, and hence NPL increases and mark-to-market losses could weigh on its 2HFY2022 earnings. We estimate a 37.8% h-o-h net profit decline in 2HFY2022.”
Tan and Lim note YZJFH’s recently established liquidity pool scheme can help speed up the company’s ongoing redeployment of funds from within China to outside the country.
“YZJFH secured from the People’s Bank of China (PBOC) a liquidity scheme to facilitate cross-border fund transfers of up to RMB10 billion ($1.95 billion) from China, equivalent to some 50% of its total asset under management (AUM) of RMB22 billion, in our estimates.”
At its listing in April, YZJFH had targeted to transfer $1 billion to Singapore by end-FY2022. Tan and Lim think some $610 million has been transferred as at end-3QFY2022, including $99 million spent on share buybacks, and the transfer of the remaining sum has been delayed to end-January 2023.
“We believe the liquidity pool scheme increases the certainty of transferring funds to Singapore, spurring offshore investments, taking YZJFH’s fund management business out of limbo,” say the analysts.
“However, we think YZJFH’s cash drag situation could be extended as the volatile macroeconomic environment weighs on investment opportunities. Investments also take time to reap returns, and track records take time to build.”
YZJFH is transitioning from a 70%/30% to a 30%/70% debt investments/private equity (PE) business by FY2023, and management has a three-fold strategy for its three categories of PE: fund of funds, direct investments and maritime funds. — Jovi Ho
Marco Polo Marine
Price target: UOB Kay Hian ‘hold’ 4.8 cents
Higher TP on resilient business
Analysts at UOB Kay Hian have downgraded Marco Polo Marine to “hold” with a higher target price of 4.8 cents from 3.8 cents previously on improving charter rates, better utilisation rate and expanded shipyard capacity.
In its Dec 7 report, the analysts note that Marco Polo’s business has stayed resilient amid the uncertain macro environment. In its 2HFY2022 ended September, Marco Polo reported a 196% y-o-y jump in core ebitda to $18.1 million, mainly driven by the rise in revenue in the ship chartering operations segment in the same period.
Marco Polo’s expansion into the booming offshore wind farm sector has also helped the company to establish its presence in Taiwan, greatly contributing to its improved financial performance with about 40% of five of its 13 offshore support vessels (OSVs) chartered out for the market, the analysts add.
Since the end of the Covid-19 pandemic, vessel charter and utilisation rates for tugboats, barges and OSVs have been on the rise. Meanwhile, the ongoing geopolitical tensions are continuing to drive oil prices up to their strongest level in almost eight years.
The elevated crude oil prices during the year have also led to oil majors looking to increase production in the commodity. This resulted in higher capital expenditure towards reactivating offshore production platforms, further raising industry utilisation positively for OSV.
On top of this, Marco Polo was awarded more contracts in the shipyard business and higher-value repair projects during the year, as observed in the segmental revenue’s 59.2% y-o-y increase from $26 million in FY2021 to $41.4 million in FY2022, the analysts point out.
Supported by minimal new builds and increased demand in Asia, Marco Polo’s vessel utilisation has been improving. The analysts note that the lack of investment in the offshore oil industry since 2014 is expected to lead to upward pressure on utilisation and day rates of support vessels going forward.
In September, Marco Polo announced its plans to build, own and operate a new Commissioning Service Operation Vessel (CSOV) as a shortage in such vessels in the market is observed. The CSOV is expected to be completed in 1QFY2024, with the management hoping to meet the increasing demand for support vessels required to service Asia’s offshore wind farm industry.
The company had also signed a memorandum of understanding with Japan’s offshore support vessel services provider “K” Line Wind Service, successfully extending its reach to Japan.
The analysts further highlight Marco Polo’s “excellent” cash management, with a strong cash position of $53.5 million as at end-FY2022. “This provides a comfortable level of support for our valuation,” the analysts say. UOB has raised its FY2023-FY2024 revenue estimates by 50%-62%, on higher-margin assumptions and improving charter rates. Accordingly, its net profit estimates have increased to 125% and 141% to $15.2 million and $17 million for FY2023 and FY2024 respectively. — Khairani Afifi Noordin
