Japan Foods Holding Ltd’s Latest Earnings: A Return to Growth

Japan Foods Holding Ltd  (SGX: 5OI) reported its first-quarter earnings for the fiscal year ending 31 March 2016 (FY2016) yesterday evening. The reporting period was for 1 April 2015 to 30 June 2015.

As a purveyor of Japanese cuisine, Japan Foods serves up affordable Japanese fare like ramen, through its Ajisen and Menya Musashi outlets, and gyoza, through its Osaka Ohsho outlets. All told, Japan Foods has a portfolio of 13 food & beverage brands as of 30 June 2015.

You can read more about the company in here and here.

Financial highlights

The following’s a quick take on the latest financial figures from Japan Foods:

  1. Overall revenue for the reporting quarter came in at S$15.8 million, up slightly by 0.8% from a year ago.
  2. Despite the flat revenue, Japan Foods’ net profit for the period rose by 28.8% year-on-year to $1.1 million. The company’s bottom-line was helped by lower administrative expenses and lower other operating expenses.
  3. Consequently, earnings per share (EPS) rose 27.7% from 0.47 cents in the first-quarter of FY2015 to 0.60 cents.
  4. Cash flow from operations came in at $2.7 million for the first quarter of FY2016 with capital expenditures clocking in at $1.1 million. This gives Japan Foods a positive free cash flow of $1.6 million for the reporting quarter, up from the figure of S$676,000 seen a year ago (cash flow from operations of S$3.5 million and capital expenditures of S$2.8 million)
  5. As of 30 June 2015, the company had a strong balance sheet with $17.4 million in cash and equivalents and no debt.

In all, Japan Foods’ reporting quarter was not too different from the last quarter in the sense that revenue growth stagnated. While net profit did rise sharply, investors might want to note that the firm had benefitted from the lack of a plant and equipment write-off which occurred in the first-quarter of FY2015.

Elsewhere, it’s a good sign to see the food purveyor being able to generate free cash flow and keep a clean balance sheet. The cash reserves Japan Foods holds may be important for the company as it seeks to reinvigorate growth.

Last but not least, Japan Foods has also received shareholders’ approval to buy-back up to 10% of its outstanding shares.

Operational highlights

Japan Foods’ overall revenue may be up only slightly in the reporting quarter on a year-on-year basis, but the picture’s more volatile for the different brands.

The company’s Menya Musashi and Osaka Ohsho outlets were stand-out performers; both grew revenue at about 11% year-on-year. Their growth was unfortunately offset by weaker sales at Ajisen Ramen and Fruit Paradise. Revenue from Ajisen Ramen was affected by two outlet closures, but it still remained as the company’s main revenue generator.

During the quarter, Japan Foods also introduced two new dining concepts: Hanamidori and Keika Ramen.

Takahashi Kenichi, the Executive Chairman and Chief Executive Officer of Japan Foods, gave the following commentary regarding the company’s reporting quarter and outlook in the earnings release:

“I am very pleased that the Group is able to report a strong set of numbers in its maiden quarterly report. Our new brands continue to yield encouraging results and we hope to keep up this momentum for the rest of the current financial year.

We continue to be encouraged by the performance of the newer brands that were introduced in the last two to three years and we are optimistic that at least one of them will grow to become the Group’s second flagship brand.

It is an exciting time to be a restaurateur. The dining scene both locally and regionally have become very vibrant as cities become more cosmopolitan and consumers attain increasingly adventurous palettes through their travels and exposure to food shows on TV that introduce different cuisines.

To stay ahead of new dining trends, we are constantly exploring new brands and new concepts to introduce locally. At the same time, we are on constant lookout for suitable store space to open new restaurants under various brands in Singapore.”

Foolish summary

At its closing price of $0.51 yesterday, Japan Foods traded at around 17.8 times its trailing earnings and has a dividend yield of 3.9% thanks to its annual dividend of S$0.02 per share for FY2015.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.