Japan Foods Holding Ltd 5OI (A quick valuation study)

This will just be a quick valuation study for Japan Foods Holding Ltd. (5OI.SI). I have previously did a quick study on this stock in June 2015 (read here).

Japan Foods’ dividend yield looks tempting at 4.06% in 2017. Among the highest in the consumer stocks family.

A quick valuation study shows that the intrinsic value is only $0.29. See below. This value is even lower than the intrinsic value ($0.34) which I’ve calculated in June 2015.

The share price on 4 May 2018 is $0.505, which means that there is basically no margin of safety.

The increase in share price since February 2018 could be attributed the to the good 3Q 2018 results.

On 7 February 2018 – Japan Foods Holding Ltd. announced that it has achieved double digit growth in both its top and bottom line for the third quarter ended 31 December 2017 (“3Q2018”) driven mainly by strong revenue contribution from its “Ajisen Ramen”, “Menya Musashi” and “Shitamachi Tendon Akimitsu” brands.

During 3Q2018, net profit attributable to equity holders of the company surged 73.1% to
S$2.5 million, from S$1.4 million in the corresponding quarter ended 31 December 2016
(“3Q2017”). This is on the back of an 11.4% increase in sales from S$16.8 million in
3Q2017 to S$18.7 million in 3Q2018.

Its flagship ‘Ajisen Ramen’ brand has performed strongly partially due to higher same-store sales following the revamp of some outlets into the ‘Den by Ajisen Ramen’ brand.”

While  its ‘Shitamachi Tendon Akitmitsu’ brand, which was launched in July 2017 at Plaza Singapura. Its performance has been so encouraging that we have since added four more stores in Northpoint City, Vivo City, Westgate and the latest one at Changi City Point which opened in January 2018.

Both the above is impressive. Nevertheless the F&B industry is a difficult one as customers have fickle palettes and what is popular today may not be popular tomorrow.

In retrospect, it wasn’t that long ago, when the outlook wasn’t as good for Japan Foods. Which probably explains the lower intrinsic value I achieved now (as compared to the figure obtained in 2015). In fact, it kind of fell out of many people’s radar.

However, given the recent good results, it is not surprising to see more analysts’ report. In fact, there is an article in today’s Business Times on Japan Foods.

• Japan Foods Holding – RHB Invest 2018-05-04: Enterprising Japanese Restaurant Chain (read here)
• How Does The Market-Beating Japan Foods Holding Ltd Earn Money? (read here)

When good things start happening, news start spreading around. Share price might jump a notch or two. Million Dollar Question, then will be – is this a good stock to buy now and hold?

Personally, I would probably need to have the prices come down more to be comfortable and to give the ‘Shitamachi Tendon Akitmitsu’ brand more time to prove itself.