Brokers' take: RHB upgrades Japan Foods to 'buy'; raises target price to S$0.50

A CONTINUED relaxation in dine-in restrictions in Singapore will likely boost Japan Foods Holding 5OI : 5OI 0% 's revenue in the next 12 months, RHB said in a research note on Monday.

The research team upgraded its call on the Japanese restaurant operator to "buy" from "neutral", and raised its target price for the counter to S$0.50 from S$0.37, after increasing its estimates for the group's profit by 9 to 12 per cent in FY2023 to FY2024.

Shares of Japan Foods closed at S$0.44 on Monday, up S$0.02 or 4.76 per cent.

Singapore's vaccination programme and plans for continued Covid-19 testing will likely allow the domestic economy to further reopen in the next few months and promote a gradual recovery in international travel by the year-end, RHB said, adding that this should bring back some of the tourist inflow and boost Japan Foods' revenue.

The group's halal operations also post strong growth potential, with its halal ramen restaurant Tokyo Shokudo recently opening two new outlets.

RHB added that it is positive on Japan Foods' strong cost control. It noted the group has been more selective in renewing its tenancy agreements amid the pandemic, and has reduced its restaurant count to 50 from 59.

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Japan Foods also has a net cash balance of S$23 million, accounting for around 33 per cent of its market capitalisation, and its continued focus on raw material cost has kept its gross margins above 84 per cent in FY2021, which should further enable it to register strong growth.

Additionally, RHB expects dividend yield will remain above 4.5 per cent amid an earnings recovery, and noted that the group has plans to revise its dividend policy to distribute at least 100 per cent of its net profit attributable to shareholders from FY2022, up from 50 per cent.