10 Quick Things I Learned From Japan Foods’ AGM 2014

Are you a fan of Ajisen Ramen? If you are, do you have an Ajisen membership card which you paid $10 for? Ever wondered how you can get it for free and dine at a discount at all these participating outlets – Ajisen, Fruit Paradise, Botejyu, Menya Musashi, Osaka Ohsho and many others?

It’s really simple… be a Japan Foods Holding’s shareholder.

As a shareholder, I receive a brand-new membership card for FREE from the company every year. And if you attend their Annual General Meeting, you also get a $20 voucher on the spot.

If you invested in Japan Foods from its IPO in 2009 at 10.9 Singapore cents a share till now, you would have made returns of around 460% (after bonus share adjustments) in just five years!

I didn’t invest in the IPO but still managed to rack up a 62.5% return in two years (including dividends and bonus shares) when I invested in 2011 when the stock was trading at a relative bargain. My buddy, Victor Chng, went one better – he invested and made a 176% return in three years from his investment.

If you’re an Investment Quadrant member, we’ll be releasing a case study video lesson really soon to show you how we found and analyzed the company and almost tripled our investment in three years, so watch out for that!

I’ve since sold my stock in 2013 but I’m left with some odd-lot shares which were given to me free. I’m technically still a shareholder, so I decided to attend the AGM this year just to see what’s “cooking” for this company.

So here are…

The 10 Quick Things I Learned From Japan Foods Holding’s AGM 2014:

  1. Takahashi Kenichi, CEO and chairman of Japan Foods, has a very good grasp of English though he has a strong Japanese accent and I had difficulties catching some sentences during the Q&A session.
  2. In 2014, Kenichi was paid remuneration of $716,000 – of which 64% of it was based on performance. Remuneration agreements like this, which are aligned with the performance of the company, are always highly welcomed by shareholders.
  3. Ajisen Ramen is a cash cow business for Japan Foods contributing 48% of total revenue in 2014. Even though Ajisen is an established brand with a reasonable price point, according to non-executive director Eugene Wong, the maximum number of outlets that Japan Foods can continue to operate profitably in Singapore ranges from 20-25 outlets in the long run. They have 19 so far.
  4. The management would never sacrifice bottom-line results for the sake of higher revenues. As such, they are not adopting an aggressive growth strategy in Singapore due to high operating expenses, mainly in rent and labor. Instead, the main strategy of Japan Foods is to continually incubate new concepts in Japan, export them, and expand when proven successful. Japan Foods’ brands Menya Musashi, which has grown from 9 to 16 outlets in Singapore, Hong Kong and China, and Osaka Ohsho, from 1 to 4 outlets in Singapore, is good example of this strategy. Conservative investors typically like the kind of behavior that Japan Foods’ management exhibits: to grow profitably, slowly and steadily.
  5. The growth of Ajisen Ramen outlets in the region has slowed in 2014. These regional outlets, located in Indonesia, Malaysia and Vietnam, are operated by sub-franchisees. Therefore, it is entirely up to those operators to expand at a pace that is comfortable with them.  If you are shareholder of Japan Foods, do not expect the number of regional outlets to grow significantly.
  6. As most of Southeast Asia’s population is predominantly Muslim, it is tough for Japan Foods’ pork-based ramen soup to expand aggressively here. Notwithstanding that, the management is exploring creating other soup bases (chicken) with its original founder, Shigemitsu, so that they can gear up for a higher growth in this region.
  7. Together with Ajisen brand and its two other star brands, Menya Musashi and Osaka Ohsho, Japan Foods is confident of having total of 60 outlets in Singapore. These brands are mainly targeted at the Chinese population. Besides these three brands, their minor brands are not expected to significantly contribute to revenues for the near future.
  8. On risk management, the group’s internal policy is always to reserve cash for at least six months of operating expenses to tide through any storm (SARS, etc.). The Japanese are known to be very conservative and I guess the founder of Japan Foods has shown that famed conservatism here.
  9. Japan Foods’ gross margin is extremely high at 81.6% and still improving steadily due to the deployment of an in-house noodle production facility. With this on-going cost control, shareholders can be rest assured that the management is doing something to mitigate rising operating expenses.
  10. Japan Foods’ management invested half-a-million dollars in government-linked bonds (NTUC, DBS, etc.) that will yield at least 3% returns p.a. till maturity. Unlike other F&B companies who pledge their fixed deposits as rental deposits to the mall, Japan Foods uses their bond investments as collateral instead and earns the difference in interest rates. So if money placed in a fixed deposit pays 0.5% interest and Japan Foods’ bond investments pay 3%, the company makes a net gain of 2.5%. A very smart move!

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Rusmin Ang is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times BTInvest section and Business Insider. He has also been featured multiple times on national radio on 938LIVE for his views and opinions on how to invest successfully in the stock market. Rusmin is on the speaking circuit for CIMB Securities (Malaysia) and has spoken at events in Penang, Sibu and Kuala Lumpur and is the co-author of Value Investing in Growth Companies published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com, Barnes & Noble and Apple's iBooks. Rusmin was actually a former SIAEC scholar who gave up his scholarship and a cushy career to follow his itch of learning how to be a better investor and ultimately lead a life of financial independence. He believes that anyone, even with a regular job, can achieve more financial peace-of-mind by investing intelligently and safely for the long term.

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