We recently met with Focus Point and came away feeling positive about the group’s prospects going forward. Optical sales in July and August have been stronger vs. SPLY due to pent up demand. With the securing of the second central kitchen, we factor in higher F&B corporate sales volumes. As such, we raise our FY21/22 earnings rise by 11.6%/11.7%. After factoring in a higher PE multiple of 16x (from 12x) and rolling over our valuation year to FY21 (from midFY21), our TP rises from RM0.52 to RM0.88. Maintain BUY.

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

2H20 outlook. To recap, Focus Point reported losses of -RM1.9m in 2Q20 (1H20: - RM0.1m) as MCO restrictions meant that physical optical stores and Komugi bakery retail outlets were shut in April and part of May. Going into 2H20, we expect Focus Point to not only return to profitability but post stronger earnings vs. SPLY.

Optical segment outlook. In the optical division, despite closing 3 and opening just 2 stores YTD, sales have rebounded strongly since the relaxation of MCO rules. Focus Point shared that sales in July and August have been stronger vs. SPLY due to pent up demand.

F&B segment outlook. While the reopening of Komugi retail outlets bodes well for Focus Point, we expect profitability in the F&B division to be driven by increased F&B corporate sales orders. To recap, up until 4Q18, Focus Point’s F&B division consisted of their own retail operations Komugi bakery. From 4Q18 onwards, Focus Point began supplying pastries to corporate clients. Since then, order volumes to corporate clients have been consistently increasing, with the entire F&B segment turning profitable in 3Q19 (Figure #1). While we note that the F&B segment reported losses at the PBT level in 1H20, we understand this was due to forced closure of Komugi retail outlets during the MCO period. Going into 2H20, we note that Focus Point’s largest corporate client continues to increase order volumes as they continue to aggressively open more outlets and increasingly rely on Focus Point as a key supplier (evidenced by increasing SKUs).

Second central kitchen secured. With increasing order volumes from existing clients and apparent interest from newer clients, we understand Focus Point’s current central kitchen has reached maximum capacity. We are encouraged by the news that Focus Point has secured a second kitchen, which is closely located to the current facility. We believe the second kitchen will be able to generate over RM4m per month from corporate sales at maximum capacity. While we are positive on this news, we expect this facility to only become operational in late-FY20 due to the setting up process and application of certain food certifications.

Forecast. With the securing of the second central kitchen, we factor in higher F&B corporate sales volumes. As such, we raise our FY21/22 earnings rise by 11.6%/11.7%.

Maintain BUY. Increased F&B corporate sales volumes and securing of a second kitchen should see profitability of the F&B division accelerate. Furthermore, we reckon the possibility of securing new F&B corporate clients is likely given the popularity of their current product offerings. As such, we raise our PE multiple from 12x to 16x. After factoring in a higher PE multiple and rolling over our valuation year to FY21 (from mid-FY21), our TP rises from RM0.52 to RM0.88. Maintain BUY.

Source: Hong Leong Investment Bank Research - 2 Sept 2020