FocusP’s FY20 core PAT of RM10.6m (+7.6%) was above ours and consensus expectations, accounting for 117.9% and 124.7% of forecasts respectively. We raise our FY21/22 forecasts by 3.5%/9.3%. With the recent relaxation of MCO restrictions and the incoming sales volumes from new corporate F&B clients, we raise our PE multiple from 18x to 22x. After adjusting for higher forecasts, higher PE multiple and rolling over our valuation year to FY22, our TP rises from RM0.78 to RM1.11. Upgrade to BUY.

Above expectations. FocusP’s 4Q20 core PAT of RM5.4m (QoQ: +1.2%, YoY: +14.8%) brought FY20 sum to RM10.6m (+7.6%). This was above ours and consensus expectations, accounting for 117.9% and 124.7% of forecasts respectively. The positive results surprise was due to stronger-than-expected profitability in the optical division in spite of the incidence of CMCO restrictions in 4Q20.

Dividend. 4Q20 DPS: None declared (4Q19: None declared). FY20 DPS: 1.33 sen (FY19: 1.25 sen). These figures have been adjusted for bonus issue.

QoQ. Sales shrank -11.7% mainly due to weaker optical (-11.5%) and F&B (-12.8%) due overall soft retail from implementation of the CMCO in 4Q20. Despite this, significantly higher purchase rebates from optical suppliers compensated for lesser sales, resulting in core PAT remaining flat (+1.2%).

YoY. Despite weaker sales (-16.6%) mainly from lesser optical sales (-20.3%) due to similar reasons mentioned above, core PAT was higher by +14.8%. This was mainly due to higher purchase rebates from optical suppliers, lower rental expenses and lower administrative expenses.

YTD. Weaker sales (-16.4%) were mainly due to various MCO’s during FY20, which hampered optical store sales (-19.2%). Despite lower optical sales, effective cost cutting measures and rental rebates resulted in the optical segment PBT growing 3.5%. Despite MCO impact, the F&B division recorded PBT of RM0.1m (from - RM0.9m losses before tax in SPLY) due to higher sales volumes to corporate clients. Overall, core PAT rose 7.6%.

Outlook. We understand that FocusP’s optical stores were only shut for a brief period during the reimplementation of MCO restrictions in 1Q21 after the government permitted optical stores to reopen. Despite being permitted to operate, we understand that sales during this period was lower by ~20% due to lacklustre foot traffic in retail areas. With regards to FocusP’s corporate sales, the recent relaxation of MCO restrictions signals a “economic reopening” bias for industry-wide F&B retail. As such, we estimate FocusP’s F&B’s sales to corporate clients to rise significantly in FY21, with the second central kitchen utilisation rate expected to surpass 30% by year-end based on increased orders from existing customers as well as new clients are expected to come on board soon.

Forecast. We raise our FY21/22 forecasts by 3.5%/9.3% to account for rebound in optical division profitability and stronger F&B corporate sales going forward.

Upgrade to BUY, TP: RM1.11. With the recent relaxation of MCO restrictions and the incoming sales volumes from new corporate F&B clients, we raise our PE multiple from 18x to 22x (pegged to consumer sector retail peers). After adjusting for higher forecasts, higher PE multiple and rolling over our valuation year to FY22, our TP rises from RM0.78 to RM1.11. Upgrade to BUY.

Source: Hong Leong Investment Bank Research - 25 Feb 2021