We understand that March chalked in a strong rebound with record high sales in both the optical and F&B segments. Central Kitchen 2 is currently up and running while management expects ISO22000 certification to be granted by end of 3Q21. The group successfully on-boarded three new customers and currently in talk with another two potential customers. Maintain BUY, TP RM1.11 based on 22x PE pegged to FY22 EPS. Increasing F&B corporate sales and commencement of CK2 should see profitability of the F&B division accelerate.

We held a conference call with FocusP and came away feeling upbeat about the group’s prospects going forward.

1Q20 earnings outlook. The reimplementation of MCO2.0 restrictions in Jan resulted in lower foot traffic in retail areas in Jan/Feb, impacting FocusP’s optical division (lower by ~20%). However, management guided that sales picked up in March, which was very strong that chalked in record high sales in both the optical and F&B segments. Management is targeting to further expand optical outlets in East Coast area and we gather that demand for optical products have been robust aided by the introduction of i-Sinar.

Second central kitchen up and running. With increasing order volumes from existing clients and apparent interests from new clients, FocusP’s current central kitchen (CK1) has reached maximum capacity. By year-end, we estimate FocusP’s second central kitchen (CK2) to have an utilisation rate of 30% based on increased orders from existing customers as well as new clients coming on board. We gather that CK2 will be able to generate up to ~RM5m sales per month from corporate sales at maximum capacity and FocusP expects ISO22000 certification for CK2 to be granted by end 3Q21.

New corporate clients. FocusP will start supplying to Customer S starting in May. Currently scheduled at 4 SKUs, the revenue is estimated to be in the range of RM100k-200k per month. We understand that FocusP is in discussion with Customer S to increase the number of SKUs to cater to its large number of cafe outlets. Additionally, FocusP recently secured DDD to supply 3 products. Delivery is scheduled to start end of April with RM90k revenue per month. We opine that this could have the potential of being one of FocusP biggest corporate clients in light of DDD blooming interests from the public. As for Tea customer, FocusP will supply room ambiance products (i.e. dry cakes, Danish pastries etc.) by 3Q21. For the Singaporean client, the group expects to start delivery in 4Q21 following the approval of ISO22000 certification.

Outlook. Crucially, FocusP’s largest client continues to increase order volumes (10 SKUs currently) as it is aggressively opening more outlets. The group is currently in preliminary discussion with Customer A (Japanese retail giant) and a petrol station conglomerate to supply some of their products. As for Komugi, 3 additional street shop concept stores are currently in the pipeline. We are positive on the strategy of moving towards street shop concept as they will ease the accessibility in residential area while lower rental rates could boost Komugi’s contribution.

Forecast. Unchanged.

Maintain BUY, TP RM1.11 based on 22x PE pegged to FY22 EPS. Increasing F&B corporate sales and commencement of CK2 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.

Source: Hong Leong Investment Bank Research - 20 Apr 2021