We recently met with Focus Point and came away feeling positive about the group’s prospects going forward. Increasing F&B corporate sales and securing a second central 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 the meeting yielded no surprises, we keep our forecasts unchanged. We maintain our TP of RM0.88 and BUY call based on an unchanged PE of 16x based on FY21 earnings.

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

3Q20 earnings outlook. We expect Focus Point’s optical division to rebound strongly in 3Q20 due to pent up demand after relaxation of MCO rules. Additionally, we foresee better margins due to increased portion of vision glasses sales (which is a significantly higher margin product category) at the expense of sunglasses (lower margins). After reporting losses in 1H20 due to MCO restrictions on Komugi retail outlets, we expect the F&B division to return to profitability (Figure #1). In addition to reopening of Komugi outlets, growth in outlet count of Focus Point’s largest F&B corporate client have resulted in much higher sales volumes. Note that currently, monthly sales to their largest corporate F&B client amounts to RM1.2m (vs. RM300k in SPLY).

F&B expansion. With the growing number of retail outlets of their largest corporate client and expected increase in SKUs supplied, Focus Point estimate sales to their largest corporate client will be able to reach RM1.7m/month by 1Q21. We understand their new SKUs will be macarons and Dorayaki (a type of Japanese red bean pancake) (Figure #2-3). Additionally, Focus Point is on track receive HACCP and ISO certifications, which would enable the group to supply food to new clients. We understand Focus Point is already in talks with a number of interested parties which require these certifications before supply agreements can be made. With capacities of Focus Point’s current central kitchen facility maxing out, a second central kitchen is in the process of being set up. At full capacity, Focus Point estimates sales from the second central kitchen will amount to RM4m per month.

Cataract surgery venture. Currently, Focus Point operates a lasik and cataract operation centre in Mid Valley under subsidiary ‘Excelview’. The group intends to expand this business division by leveraging the expertise of their long term partner and medical professional at Excelview to open two more centres in second tier cities. For the time being, Focus Point is in the midst of setting up the first location in Batu Pahat, Johor. The new venture will be 60% owned by Focus Point and 40% owned by Excelview’s optical surgeon. Capex for this venture is expected to be ~RM1.5m per centre.

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

Maintain BUY. Increasing F&B corporate sales and securing of a second central 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. We maintain our TP of RM0.88 and BUY call based on an unchanged PE of 16x based on FY21 earnings

Source: Hong Leong Investment Bank Research - 2 Nov 2020