RHB Group Research analyst Shekhar Jaiswal has upgraded Japan Foods Holdings to “buy” from “neutral” previously on the back of the relaxation of dine-in restrictions.
From July 12, groups of five – up from groups of two – will be allowed to eat in at food and beverage (F&B) establishments.
The gradual and selective opening of international travel is also expected to take place by the end of 2021.
On this, Jaiswal has increased Japan Foods’ target price estimate to 50 cents from 37 cents, representing a 19% upside from its last-closed price.
The new target price also represents a 6% yield for the FY2022 ending March.
Jaiswal, in a July 12 report, has also raised his profit estimates for the FY2023 to FY2024 by 9% to 12%, based on its “strong balance sheet, large franchise and lower competition amidst the pandemic”.
During Covid-19, Jaiswal notes that the company has been selective in renewing its tenancy agreements. It had also reduced its restaurant count to 50 from 59 during the period.
See also: RHB stays 'neutral' on Japan Foods as it moves past 'weak' FY21
In the FY2021, Japan Foods was able to keep its gross margins to above 84% due to its focus on raw material costs.
“While FY2021 EBIT was supported by government grants, our FY2022 already factors in a reduction in government support. It has a net cash balance of $23 million, which accounts for 33% of its market cap,” writes Jaiswal.
In addition, Japan Foods will be revising its dividend policy from FY2022, where it will distribute at least 100% of the net profit attributable to equity holders, up from 50%.
“Amidst expected earnings recovery, we believe dividend yield should remain above 4.5% for its forecast years,” he adds.
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Jaiswal also views Japan Foods’ diversification into halal offerings as one that could have “strong growth potential” for the group despite the higher operating costs.
Shares in Japan Foods closed 1 cent lower or 2.3% down at 42 cents on July 9, or 2.2 times FY2021 P/B, according to RHB’s estimates.
