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The Good And Bad That Investors Should Know About Japan Foods Holding Ltd’s Latest Earnings

Japan Foods Holding Ltd (SGX: 5OI) is a Japanese restaurant chain in Singapore, operating a number of brands such as “Ajisen Ramen”, “Osaka Ohsho” and “Menya Musashi”. It has also expanded beyond Singapore to Malaysia, Vietnam, Hong Kong and Mainland China.

The company has recently released its 2018 fourth quarter (4Q FY18) earnings update. In this article, we will look at the good and the bad from its result announcement.

But before we dig into the details, let’s have an overview of the overall results.

Source: Japan Food’s Press Release

We can see that almost all metrics came in stronger on a year-on-year basis, mainly driven by higher revenue and better cost control.

The positives

First of all, group revenue was up by 6.5% year-on-year, mainly driven by contribution from the restaurants operating under the “Ajisen Ramen” and “Menya Musashi” brands as well as new contribution from its “Shitamachi Tendon Akitmitsu” brand, which was launched in July 2017.

Secondly, operating cash flow for the quarter came in higher at S$2.2 million, up from S$1.4 million a year ago. The improvement on operating cash flow was driven by higher profit and favorable movements in working capital.

Thirdly, Japan Foods entered into an agreement with PT Arena Gourmet and PT Menya Musashi Indonesia to operate restaurants under the “Menya Musashi” brand in Indonesia via a joint venture. If successful, this venture should contribute positively to the company’s future growth.

Last but not least, Japan Foods maintained a strong balance sheet with no borrowings, as of 31 March 2018, while its cash and bank balance stood at S$21.9 million.

The negatives

Firstly, not all brands delivered growth in the latest operating quarter. “New ManLee Bak Kut Teh”, “Dutch Baby Cafe”, “Hanamidori”, “Menzo Butao”, “Kazokutei”, “Botejyu”, “Ginza Kushi Katsu” and “Fruit Paradise” brands collectively generated a decrease in revenue of S$5 million.

Secondly, gross margin percentage declined marginally from 85.2% in the fourth quarter of FY2017 to 84.8%. This was due to lower gross margin attributable to certain brands.

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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.