We held a conference call with Focus Point and came away feeling neutral about the group’s near term prospects going forward. Despite e-commerce offerings and cost saving initiatives, we expect the loss of revenue from physical stores to result in losses in 2Q20. However, going into 2H20 we expect earnings to rebound with optical sales from physical outlets returning to pre - covid levels and F&B corporate sales continuing to grow strongly from increased order volumes. As the meeting yielded no surprise s, we keep forecasts unchanged. We maintain our HOLD call and TP of RM0.43 based on an unchanged PE of 10x pegged to mid-FY21 earnings.

We held a conference call with Focus Point and came away feeling neutral about the group’s near term prospects going forward.

2Q20 results preview. MCO restrictions during 2Q20 meant that physical optical stores and Komugi bakery retail outlets were shut during April and part of May. We understand that its optical division was able to ramp up its e-commerce presence in response to loss of sales from brick and mortar stores. However, its monthly online sales of RM600,000 at the peak of the MCO was only a fraction of its sales (at approximately of 5% of its regular monthly optical sales). In response to the loss of revenue, we expect Focus Point to realise cost savings from rental waivers and staff taking voluntary unpaid leave of RM3-4m and RM2-3m respectively. We estimate this to be approximately 10% total annual staff rental and staff cost. Despite cost savings, we do not expect this to be sufficient to compensate for the absence of physical store revenues, hence we expect Focus Point to report losses in 2Q20.

Optical division outlook. Encouragingly, we understand that optical sales in July grew vs. SPLY. While Focus Point has shared that sales in Johor will likely remain lacklustre (due to the absence of Singaporean customers), sales in northern and east coast territories have more than compensated for this. We expect Focus Point to reduce the number of optical stores this year from 183 operational stores at endFY19. On a net basis, we expect Focus Point to have 5 less outlets by year end. YTD, it has opened 1 and closed 4 stores.

Robust F&B corporate sales continue. In spite of the MCO, Focus Point’s F&B corporate sales continued to grow strongly. Crucially, Focus Point’s largest client continues to increase order volumes as it continues to aggressively open more outlets and increase SKUs from Focus Point (from 5 to 7 currently). At current order volumes, Focus Point’s central kitchen facility is operating at full capacity.

Second central kitchen secured. Focus Point shared that is has secured a 3-year lease (with an option to buy in the 4th year) for a second kitchen which has a floor space of ~12,000 sqft. We understand that the kitchen was previously operated by an F&B company producing pies and pastries. As such, the equipment is suitable to be used for Focus Point’s operations. We believe this is a favourable deal for Focus Point as it saves a significant amount of capex as the monthly rental of RM35,000/month is inclusive of the use of the equipment. At full capacity Focus Point estimates that it will be able to generate monthly sales of over RM4m from this facility.

Forecast. As the meeting yielded no surprises, we keep forecasts unchanged.

Maintain HOLD. We maintain our HOLD call and TP of RM0.43 based on an unchanged PE of 10x pegged to mid-FY21 earnings.

Source: Hong Leong Investment Bank Research - 3 Aug 2020