FocusP’s 1QFY20 core PAT of RM1.8m (QoQ: -61.5%, YoY: -15.7%) was below ours and consensus expectations, accounting for 21.6% and 20.1% of full year forecasts respectively. We deem this below expectations as we expect FocusP to post weak earnings in 2Q20 due to optical stores being forced to te mporarily close during the MCO period. We lower our FY19/20 forecasts by 5.4%/1.6% to account for weaker sales in optical division. Despite the results shortfall, the migration from MCO to CMCO (allowing its outlets to operate) has somewhat reduced business risk; as such we raise our PE target from 9x to 10x. All in, our TP raises from RM0.40 to RM0.43, maintain HOLD.

Below expectations. FocusP’s 1QFY20 core PAT of RM1.8m (QoQ: -61.5%, YoY: - 15.7%) was below ours and consensus expectations, accounting for 21.6% and 20.1% of full year forecasts respectively. We deem this below expectations as we expect FocusP to post weak earnings in 2Q20 due to optical stores being forced to temporarily close during the MCO period (ended 3 May and transitioned to CMCO). The results shortfall mainly due to weaker than expected optometry sales.

Dividend. None declared (1Q19: None)

QoQ. FocusP’s core PAT sank -61.5% in tandem with lower sales (-24.5%) due to seasonality in addition to weaker sales in the optical division (-26.4%) from Covid-19 impact. 4Q is typically a disproportionately strong quarter for FocusP as the optical division receives rebates from major suppliers for meeting sales targets for the year. Note that core PAT in 4Q18 and 4Q19 accounted for 62.7% and 47.7% of full year earnings respectively.

YoY. Overall weaker sales (-13.4%) was mainly due to lower optical division sales (- 15.2%). Lesser sales in the optical division were due to MCO restrictions which resulted in the temporary closure of all of FocusP’s optical retail stores from mid March. While Food & beverage (F&B) division sales rose 4.4% from increased corporate sales, division LBT widened to -RM0.4m (from -RM0.1m) from the closure of the group’s Komugi retail outlets during the MCO period. Overall, core PAT declined -15.7%

Outlook: While we are positive on FocusP’s pivot to ecommerce and cost savings from rental waivers and reduction in staff cost, we don’t believe it will be sufficient to make up for the lost revenue from brick and mortar sales in 2Q20. Our FY20 forecasts represent a 19.6% decline in core PAT from FY19. Even before the Covid-19 outbreak and subsequent MCO, FocusP had intended to close 6-7 non-performing stores. With the occurrence of Covid-19, we reckon that the number of store closures to be higher. Note that franchise operated stores incur their own labour and rent cost. Despite FocusP sharing that they intend to provide support in this trying time, we still expect some of these stores to face cash flow issues. All planned store openings in FY20 have been scraped for the time being; we had previously expected a net 6 increase in the number of optometry stores.

Forecast. We lower our FY20/21 forecasts by 5.4%/1.6% to account for weaker sales in optical division.

Maintain HOLD. Despite the results shortfall (and earnings cut), we reckon that with the migration from MCO to CMCO (where both its optical stores and F&B outlets are allowed to open), business risk on this front has reduced. As such we raise our PE target from 9x to 10x, pegged to mid-FY21 earnings. All in all, our TP rises from RM0.40 to RM0.43. Maintain HOLD.

Source: Hong Leong Investment Bank Research - 28 May 2020