Japan Foods Holding Ltd’s Mixed Track Record In Growing Its Business

Japan Foods Holding Ltd (SGX: 5OI) is one of the leading Japanese restaurant chains in Singapore. As of 30 September 2017, Japan Foods has 48 restaurants in Singapore under various brands, and 21 restaurants outside of Singapore in Malaysia, Vietnam, Hong Kong, and China. The company’s restaurant brands include Ajisen Ramen, Menya Musashi, and Osaka Ohsho.

One of the things that I like to do when analysing a company is to study its track record. The past is no guarantee of the future. But historical information is the most reliable thing that we can use as our basis to forecast what lies ahead.

And this brings me to the main purpose of this article, which is to have a quick overview of Japan Foods’ historical business growth. The table below is a snapshot of the company’s important financial metrics from FY2013 (financial year ended 31 March 2013) to FY2017:

Source: Japan Foods FY2017 annual report

Here are a few points worth highlighting:

1. Firstly, the food & beverage retailer’s revenue has compounded at 1.7% annually from S$61.3 million in FY2013 to S$65.5 million in FY2017. There’s obviously growth, but it has been anaemic.

2. Secondly, the company appears to have a great handle on its food costs, as its gross profit margin has improved from 80.1% in FY2013 to 84.9% in FY2017.

3. Thirdly, Japan Foods’ net profit had fallen by 27% from S$6.4 million to S$4.7 million over the past five years. The decline in net profit, despite growth in revenue and the gross profit margin, meant that operating expenses – such as rental and employee costs – had increased at a much faster rate during the period.

4. Lastly, the lower net profit has resulted in Japan Foods’  return on equity falling from 25.6% in FY2013 to 14.8% in FY2017.

In sum, I think that Japan Foods had faced significant cost pressures in the last five years, which had resulted in a decline in the bottom-line.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.