FocusP’s 3Q20 core PAT of RM5.3m (2Q20: -RM1.9m, YoY: +297.8%) brought 9M20 sum to RM5.2m (+1.0% YoY). This is above ours and consensus expectations, accounting for 65.7% and 74.8% of forecasts, respectively. 4Q is typically a seasonally stronger quarter for FocusP. We raise our FY20/21/22 forecasts by 13.8%/5.5%/3.9%. After our earnings adjustment, our TP rises to RM0.93 from RM0.88, pegged to unchanged 16x PE multiple of FY21 earnings.

Above expectations. FocusP’s 3Q20 core PAT of RM5.3m (2Q20: -RM1.9m, YoY: +297.8%) brought 9M20’s sum to RM5.2m (+1.0% YoY). This is above ours and consensus expectations, accounting for 65.7% and 74.8% of forecasts respectively. 4Q is typically a seasonally stronger 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. The positive result surprise was due to stronger-than-expected optical division earnings from rental rebates and increased profitability in the F&B division from robust corporate sales.

Dividend. DPS of 1 sen declared, going ex on 9 Dec (vs 3Q19: None); 9M20: 2 sen (9M19: 1.875sen). 3Q19 and 9M19 DPS figures shown here have been adjusted for bonus issue.

QoQ. Strong rebound in sales (+85.0%) was mainly due to rebound in optical (+86.7%) and F&B (+71.4%) divisions due to relaxation of MCO restrictions and better foot traffic to shopping malls and other retail areas. Core PAT of RM5.3m (from -RM1.9m losses after tax) was achieved of the back of sales recovery.

YoY. Increased sales (+5.5%) were due to better sales in the optical division (+2.5%) from pent up demand as well as the F&B division (+27.7%) from increased corporate sales orders. Better sales coupled with lower admin expenses and rental costs due to various rental rebates granted by landlords resulted in core PATAMI nearly tripling (+297.8%).

YTD. MCO restrictions on non-essential retail outlets meant that FocusP’s optical outlets were shut between mid-Mar and early-May. Despite revenue normalisation in 3Q20, optical sales were lower by -18.9%. While a number of Komugi bakeries were impacted by the Covid-19 with weaker foot traffic and forced closure of a number of stores, F&B sales were up by 4.2% due to increased sales to corporate clients. Impressively, despite MCO restrictions on retail operations, core PAT managed to sustain (+1% YoY).

Outlook. While we note that the CMCO has somewhat impacted foot traffic to shopping malls in 4Q20, we expect FocusP to post strong earnings in 4Q20 from rebates from suppliers mentioned above. Additionally, we expect increasing corporate sales volumes going into FY21 due to better demand from existing clients and commencement of second central kitchen operations.

Forecast. We raise our FY20/21/22 forecasts by 13.8%/5.5%/3.9% to account for rebound in optical division profitability and stronger F&B corporate sales going forward.

Maintain BUY. After our earnings adjustment, our TP rises to RM0.93 from RM0.88 previously pegged to an unchanged 16x PE multiple of FY21 earnings.

Source: Hong Leong Investment Bank Research - 26 Nov 2020