FocusP’s 2Q20 core loss after tax of -RM1.9m (from core PAT of RM1.8m in 1Q20 and RM1.7m in 2Q19) brought 1H20 to a near breakeven (-RM0.1m). Forecasts remain unchanged. We raise our TP from RM0.43 to RM0.52 pegged to a higher PE of 12x (from 10x previously). We believe the worst is over with sequential results recovery in the offing. Upgrade from Hold to BUY.

In line. FocusP’s 2Q20 core loss after tax of -RM1.9m (from core PAT of RM1.8m in in 1Q20 and RM1.7m in 2Q19) brought 1H20 to a near breakeven (-RM0.1m). We deem this within expectation as we expect a stronger 2H20 (vs. 1H20) due to resumption of retail operations and expected increase in F&B corporate sales volumes.

Dividend. None declared (vs 2Q19: 0.75sen); 1H20: 1sen (1H19: 1.875sen). 2Q19 and 1H19 DPS figures shown here have been adjusted for bonus issue. Note that in Sep FY19, FocusP had issued a 1 for 3 bonus issue.

QoQ. Sales decline (-32.4%) in optical (-34.2%) and F&B (-14.4%) was due to the closure of all retail outlets during the MCO period. Lower sales coupled with fixed cost component of cost structure led to core loss after tax of -RM1.9m (from RM1.8m in 1Q20).

YoY. Sales decline (-41.7%) and loss after tax of -RM1.9m (from core PAT of RM1.7m) was due to similar reasons mention above. Note that while Komugi retail outlets were closed for a portion of 2Q20, on-going F&B corporate sales cushioned the decline sales, resulting in F&B revenue only falling by -17.7%.

YTD. Lesser sales (-27.6%) in optical (-29.7%) and F&B (-9.0%) segments were attributed to the closure of retail outlets from 18 Mar to 3 May. At the core PAT level, FocusP was marginally loss making (-RM0.1m) due to lesser sales and fixed cost component of costs (rental, depreciation, etc.).

Optical division outlook. We understand that optical sales in July grew YoY as MCO restrictions were relaxed and consumers returned to physical outlets. While we expect FocusP to end the year with a lower optical store count then the 183 ope rational stores as of end-FY19, we are encouraged by the quick rebound in optical sales.

F&B corporate sales outlook. With its current central kitchen hitting full capacity with increased orders from existing clients, we understand FocusP have managed to secure 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. With monthly rental of RM35k inclusive of baking equipment, FocusP reckons they will be able to generate monthly sales of over RM4m from this facility at full capacity.

Forecast. Unchanged as the Results Are in Line.

Upgrade to BUY. The relaxation of MCO rules and the resumption of retail operations augur well for the group. We are further encouraged by the news that FocusP have been able to secure a second central kitchen with favourable rental cost given the expected increase in F&B corporate sales volumes. Due to this, we expect FocusP to return to profitability in 3Q20 and reckon that the worst is over with sequential results recovery in the offing. As such, we raise our TP from RM0.43 to RM0.52, derived from a higher PE of 12x (from 10x previously) tagged to mid-FY21 EPS. Upgrade from Hold to BUY

Source: Hong Leong Investment Bank Research - 26 Aug 2020