Japan Foods FY17 Q1 results

FY17 Q1 (April – June) financial result is good. Q1 Revenue rose by 6.4% yoy, EBIT +23.1% and NPAT +24.1% yoy.

Japan Foods - Financials - FY17Q1.PNG

Source: Japan Foods FY17 Q1 result presentation.

The number of outlets grew from 47 by end of March to 49 by end of June. This is expected and according to their plan to open more outlets this year. Some of the outlets closure in the past was not due to unprofitable business, but due to mall renovation. For example, they closed the outlet at Tiong Bahru Plaza because the mall was having a major renovation. Now that the renovation is done and the mall is open, JFH resumes the operation there. The outlet at Compass Point mall (now called Compass One) was closed for the same reason and is expected to resume business once the mall is open in September 2016. It’s reasonable to assume that these outlets were profitable and provided decent return on capital before the closures and are likely to be profitable when they re-open. So, their re-opening should create value for the Company.

What surprised me a little is the rising profit. I was actually expecting the profit to drop as there are usually fixed overhead costs for opening new outlets. So, this quarterly result exceeded my expectation.

Japan Foods - Outlet List - FY17Q1.PNG

The negative is JFH’s flagship brand,  Ajisen Ramen. Its revenue continues to fall year after year. It took a long time to build this franchise brand and it’ll be difficult to find a sustainable replacement.

Japan Foods - Ajisen Ramen Performance - FY17Q1

Overseas operation also took some hit. Two Ajisen Ramen outlets in Malaysia, one in Vietnam and two Menya Musashi outlets in Hong Kong were closed in the past one year. As a consequence, in the Q1 financial statement, share of results of associated companies fell sharply from 86k to 54k. This is very small relative to the overall value of JFH though.

Japan Foods - Outlet List Overseas - FY17Q1.PNG

Financial performance can fluctuate from quarter to quarter, and quarterly result only forms a small part of the overall value of the Company. My valuation on JFH remains the same. If Q2 result ends up as good as Q1 but the share price falls another 10% or more, I could add my position.


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