Brokers’ take: RHB lowers Japan Foods’ target to S$0.45 despite positive sales outlook
Navene Elangovan
RHB Research lowered its medium-term profit forecasts for food and beverage group Japan Foods to account for higher operating costs, resulting in a target price cut to S$0.45 from S$0.65 previously.
Analyst Shekhar Jaiswal slashed his profit forecasts by 37 per cent to 50 per cent from FY2024 to FY2026, after the group’s financials for the first quarter of FY2024 ended June “significantly” missed RHB’s expectations.
“The rise in expenses was mainly due to higher manpower costs, utility expenses, and depreciation charges of the right-of-use assets in line with higher revenue and business activities,” noted Jaiswal in a report on Tuesday (Sep 5).
“While we expect the selling and distribution expenses to moderate, it may still come in higher in FY2024,” he added.
Nonetheless, Jaiswal maintained his “buy” rating on the Singapore-listed stock, as he expects the group to register strong sales growth.
This should be driven by the expansion of its halal restaurant brands, which have had strong customer demand and growth in revenue contributions, in Jaiswal’s view.
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He also believes Japan Foods will maintain a close to 100 per cent dividend payout ratio from FY2024 to FY2026.
This implies a dividend yield of 5 per cent which would, in turn, provide “strong support (to the stock’s) share price at current levels”, said Jaiswal.
Japan Foods operates restaurants including Ajisen Ramen and Tokyo Shokudo.
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Its shares were trading at S$0.42 as at 10.36 am on Tuesday, up S$0.025 or 6.4 per cent.
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