Great analysis! Japan food has been on my watchlist for a bit because I feel the market might have underpriced it a bit, but the thing about the food industry is that it is very competitive, and I've always wondered where lies Japan food's competitive moat.
For eg. jumbo and breadtalk can always count on IE singapore to propagate their brands overseas. I've seen how IE singapore works and you'll be surprised how far they'll push the boat, if your brand is under their endorsement.
Also like you mention, the tight labour markets and inflationary pressure of raw food materials also contribute to the decreasing operating margins, and since their their biggest revenue generator (ajisen ramen) is largely seen as budget ramen chain, the demand is largely elastic, and so, they cannot afford to pass on the extra cost to the consumer, and not forgetting that they're also facing headwinds from other ramen chains such as ippudo etc which will again affect the revenue. And with fnb with high uncertainties (no economic moat), a dcf model could be quite inaccurate.
Reply to @warster : I believe operation efficiency plus economy of scale is a moat. Then the ability to raise prices is an important factor. If costs increase, everyone will have to raise prices to pass the costs on to consumers. (Inflation!) Not too sure how sensitive consumers are to prices though. If no one can raise price, margin will be squeezed. The lowest cost producer will be relatively better off.
Crazy rise today! say yes to fundamental investing.
Reply to @kc2024 : Wait for the dividend. Hold it long term.
so far the commenters only 1 vested?
Great analysis! Japan food has been on my watchlist for a bit because I feel the market might have underpriced it a bit, but the thing about the food industry is that it is very competitive, and I've always wondered where lies Japan food's competitive moat.
For eg. jumbo and breadtalk can always count on IE singapore to propagate their brands overseas. I've seen how IE singapore works and you'll be surprised how far they'll push the boat, if your brand is under their endorsement.
Also like you mention, the tight labour markets and inflationary pressure of raw food materials also contribute to the decreasing operating margins, and since their their biggest revenue generator (ajisen ramen) is largely seen as budget ramen chain, the demand is largely elastic, and so, they cannot afford to pass on the extra cost to the consumer, and not forgetting that they're also facing headwinds from other ramen chains such as ippudo etc which will again affect the revenue. And with fnb with high uncertainties (no economic moat), a dcf model could be quite inaccurate.
Reply to @warster : I believe operation efficiency plus economy of scale is a moat. Then the ability to raise prices is an important factor. If costs increase, everyone will have to raise prices to pass the costs on to consumers. (Inflation!) Not too sure how sensitive consumers are to prices though. If no one can raise price, margin will be squeezed. The lowest cost producer will be relatively better off.