We met with FocusP and came away feeling positive about the group’s prospects going forward. After factoring in stronger orders than previously expected from FocusP’s central kitchen, we raise our FY20/21 earnings forecasts by 3%/5.5% to account for better contribution from the F&B corporate sales division. We maintain our BUY rating. After taking into consideration the significantly stronger growth from F&B corporate sales, we raise our PE multiple from 15x to 17x. A valuation multiple of 17x is in line with FocusP’s listed peers. After accounting for earnings adjustment and higher PE, our TP increases to RM0.84 (pegged to 17x mid-FY21 EPS) from RM0.70 previously.

We recently met with FocusP and came away feeling positive about the group’s prospects going forward.

Pursuing food safety certification HACCP and ISO 22000. FocusP is currently in the process of attaining the HACCP certification and targets to be certified by Jun-20. This will allow FocusP to secure a wider array of corporate clients. In terms of ISO 22000 certification, we understand that the process takes a minimum of six months to attain. We expect the ISO and HACCP certifications to allow the group to solicit clients in highly regulated industries like aviation or clients in Singapore, which they currently do not have. We feel positively about these certifications, as we understand there have already been enquiries from clients who have been interested in securing the products from FocusP’s central kitchen.

Increased capacities required with the onset of new orders. At current order volume, FocusP’s central processing kitchen is operating at 70% capacity utilisation rate. With the expected increase in orders just from existing clients (due to already agreed on increased order size and expansion of outlet count of existing clients), FocusP’s central processing kitchen will reach full capacity by year end. Should FocusP secure new contracts to supply pastries to external clients, FocusP will look to set up another central kitchen. This should take <RM3m to set up and will be funded by internally generated funds.

4Q19 earnings preview. We expect strong earnings in 4Q19 due to rebates in the optical division from major suppliers which is linked to FocusP achieving certain sales targets during the year. Note that 4Q18 accounted for 62.7% of the group’s full year earnings in FY18. In 9M19, FocusP reported core PAT of RM5.2m (which was 65% of our FY19 estimates)

Forecast. After factoring in stronger orders than previously expected from FocusP’s central kitchen, we raise our FY20/21 earnings forecasts by 3%/5.5% to account for better contribution from the F&B corporate sales division.

Maintain BUY, TP: RM0.84. After considering the significantly stronger growth from F&B corporate sales, we raise our PE multiple from 15x to 17x. A valuation multiple of 17x is in line with FocusP’s listed peers (Figure #1). After accounting for earnings adjustment and higher PE, our TP increases to RM0.84 (pegged to 17x mid-FY21 EPS) from RM0.70 previously. We maintain our BUY rating.

Source: Hong Leong Investment Bank Research - 24 Feb 2020