Despite the near term uncertainties we remain upbeat about the group’s longer term prospects. We are comforted to know that optical sales in community malls are still doing pretty decent that help to cushion the sales decline in tourist-centric malls. CK2 is currently running at c.30% utilisation rate (better than previous guidance of 30% by year end) and we expect the utilisation rate to improve to 70% based on increased orders from existing customers as well as new clients coming on board. The group is currently in advance discussion with a convenience chain store in Singapore and Tea customer. We cut our FY21/FY22 forecast by -9% and -4%, respectively to reflect near term FMCO hiccups. Reiterate BUY, with lower TP of RM1.05 (from RM1.10) based on 22x PE pegged to FY22 EPS.

We held a conference call with FocusP and despite the near term uncertainties we remain upbeat about the group’s longer term prospects.

2Q21 outlook with FMCO impact. We understand that April sustained strong sales momentum after March 2021 chalked in record high sales for both the optical and F&B segments. However with the recent FMCO, the lower foot traffic in retail areas are impacting FocusP’s optical division. Despite that, we are comforted to know that sales in community malls are still doing pretty decently to help to cushion the sales decline in tourist-centric malls (i.e. KLCC, Genting, Pavilion etc).

Faster-than-expected ramp up for second central kitchen (CK2). Management shared that CK2 is currently running at 20-30% utilisation rate, better than previous guidance of 30% by year end. We understand that this is driven by Customer S’ encouraging order to supply to their café outlets in West Malaysia (c.250 outlets). FocusP is in discussion to increase the number of SKUs and expanding their supply to Customer S’s East Malaysia outlets. By year-end, we estimate FocusP’s CK2 to have a utilisation rate of 70% 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.

Further catalyst for F&B segment. Additionally, FocusP recently secured DDD to supply 9 products (from 3 SKUs previously). We opine that this could have the potential of being one of FocusP biggest corporate clients in light of DDD’s blooming interests from the public. We understand that the number of SKUs is expected to increase once DDD’s new Tropicana Gardens Mall outlet is set to open (scheduled for Aug 21). Additionally, the group is currently in advance discussion with a convenience chain store in Singapore and Tea customer.

Outlook. Crucially, FocusP’s largest client continues to increase order volumes (10 SKUs currently) as it is aggressively opening more outlets. As for Komugi, the new SS2 street shop outlet chalked in decent sales of c.RM150k in its initial months of operation. 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. Furthermore, contribution from online third-party platform Grab has shown to be encouraging, with a leap of >100% sales increase QoQ. Judging from the previous MCO trends, management is hopeful that sales will pick up fast upon relaxation of movement restrictions. We remain confident with FocusP scalable business model as we reckon that both optical and F&B segments are able to ramp up fully once operating condition normalizes.

Forecast. We lower our FY21/FY22 forecast by -9% and -4% respectively, to account for the near term hiccup in light of the FMCO restrictions.

Maintain BUY, with lower TP of RM1.05 (from RM1.10) based on unchanged 22x PE pegged to FY22 EPS. Increasing F&B corporate sales and ramping up 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 - 24 Jun 2021