FocusP’s chalked in 1Q21 core PAT of RM3.2m (QoQ: -42.9%, YoY: +54.9%). This is in line at 22% and 25% of our and consensus full year forecasts, respectively. Post annual report adjustments, our FY21/22 forecasts decrease marginally by -2%/-1%. We maintain our BUY rating on FocusP, with a slightly lower TP of RM1.10 (from RM1.11) pegged to unchanged 22x PE of FY22 EPS. Increasing F&B corporate sales and commencement of CK2 should see profitability of the F&B division accelerate.

Within expectations. FocusP chalked in 1Q21 results with revenue of RM42.5m (QoQ: -2.9%; YoY: +7.2%) and core PAT of RM3.2m (QoQ: -42.9%, YoY: +54.9%). This came in at 22% and 25% of our and consensus full year forecasts, respectively. We deem this to be in line as 2H is a seasonally stronger period for the group. Core PAT was arrived after minor adjustments for gain on disposal of PPE, impairment loss on PPE, PPE written off and loss on forex amounting to RM45k.

Dividend. Declared single interim dividend of 1.0 sen/share (1Q20: 1.0 sen/share); ex-date on 11 June 2021.

QoQ. Revenue dipped in slightly by -2.9% to RM42.5m, dragged by the decline in optical related products (-4.5%) offsetting the growths in franchise management (+11.6%) and F&B (+5.3%). Core PAT sank -42.9% in tandem with lower sales due to seasonality coupled with lower EBITDA margin recorded (1Q21: 33.2%, 4Q20: 46.3%). Note that 4Q is typically a disproportionately stronger quarter for FocusP as the optical division receives rebates from major suppliers for meeting sales targets for the year. Historically, core PAT in 4Q19 and 4Q20 accounted for 47.7% and 50.1% of full year earnings, respectively.

YoY. Top line improved by +7.2% attributable to growths in optical related products (+3.5%) and F&B segment (+36.7%). Core PAT registered an encouraging growth of +54.9% on the back of (i) improvement in sales as the group was impacted by temporary closures of all optical retail stores from mid-March 2020; (ii) rise in EBIT margin (+3ppt) driven by higher contribution from optical related products; and (iii) reduction of interest expense by -46.8%.

Outlook. We gather that FocusP’s largest F&B client continues to increase order volumes (10 SKUs currently) as it is aggressively opening more outlets. Additionally, the group will start supplying to Customer S starting in June. 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. 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. Post FY20 audited accounts adjustments, our FY21/22 forecasts decrease marginally by -2%/-1%.

Maintain BUY, TP of RM1.10. We maintain our BUY rating on FocusP, with a slightly lower TP of RM1.10 (from RM1.11) pegged to unchanged 22x PE of FY22 EPS. We remain confident in the group’s outlook with its relatively MCO -resilient business model, as we view optical sales as an essential rather than a discretionary purchase. Additionally, increasing F&B corporate sales and commencement of CK2 should see profitability of the F&B division accelerate.

Source: Hong Leong Investment Bank Research - 28 May 2021