FocusP’s 1H21 core PAT of RM3.3m (1H20: -RM12k) was below expectations making up 25%/27% of our and consensus full year forecast s, respectively. Overall, optical related products were affected by soft footfall, while F&B division continued to thrive with revenue increased by 22.8% QoQ / 64.1% YoY. Its largest F&B client continues to expand product range to 13 SKUs currently as it is aggressively opening more outlets. We cut our FY21/22/23 EPS forecasts by -17%/-2%/-2%. Maintain BUY with lower TP of RM1.03 (from RM1.05) pegged to unchanged 22x PE of FY22 EPS. We remain confident with FocusP’s scalable business model as we reckon that both optical and F&B segments are able to ramp up fully once operating condition normalizes.

Missed expectations. FocusP chalked in 2Q21 revenue of RM35.3m (QoQ: -17.0%; YoY: +31.8%) and breakeven core PAT of RM21k (QoQ: -99.4%, 2Q20: -RM1.9m) which brought 1H21 total to RM3.3m (1H20; -RM12k). This only accounts for 25% and 27% of our and consensus full year forecasts, respectively. The deviation was on the back of lower-than-expected revenue resulting from Phase 1 restrictions. Core PAT was arrived after minor adjustments for loss on PPE disposal, reversal of PPE impairment loss, PPE written off and forex loss which amounted to RM8k.

Dividend. None. (2Q20: none). 1H21 dividend amounted to 1.0 sen per share (1H20: 1.0 sen per share).

QoQ. Revenue was lower by -17.0% to RM35.3m, dragged by the decline in optical related products (-22.7%) and franchise management (-13.3%) offsetting the growth in F&B (+22.8%). The lower sales were due to the introduction of MCO3.0/Phase 1 in May/June. In turn, core PAT sank further by -99.4% on the back of lower EBIT margin recorded (2Q21: 3.3% vs 1Q21: 13.3%).

YoY/YTD. Top line improved by +31.8% YoY/+17.1% YTD attributable to growths in all segments: optical related products +21.5% YoY and F&B segment +96.2% YoY. 1H21 bottom line registered an encouraging growth to RM3.3m from losses of - RM12k in the SPLY. This was attributable to (i) sales improvement as it was impacted by full closures of all optical retail stores from mid-March 2020 to beginning of May 2020; (ii) rise in EBIT margin (+5ppt YTD) driven by higher contribution from optical related products; and (iii) reduction of interest expense by -29.1% YTD.

Outlook. As highlighted earlier, F&B division continues to chart impressive growth. We gather that FocusP’s largest F&B client continues to expand product range from 10 SKUs to 13 SKUs currently, as it is aggressively opening more outlets. Currently FocusP is in discussion to increase the number of SKUs and expanding their supply to Customer S’ East Malaysia outlets. Additionally, growth will also be supported from higher utilization of CK2 (currently at 50%) as orders ramp up. As for optical division, sales have been impacted by soft foot traffic from the MCO3.0/Phase 1. Despite that, with the further easing of restrictions for states in Phase 2 and 3, alongside fully vaxed consumers, we expect this to gradually recover moving forward.

Forecast. We cut our FY21/22/23 forecasts by -17%/-2%/-2% to account for lower revenue from optical related products.

Maintain BUY, TP of RM1.03. We maintain our BUY rating on FocusP, with lower TP of RM1.03 (from RM1.05) pegged to unchanged 22x PE of FY22 EPS. We remain confident on FocusP’s scalable business model as we reckon that both optical and F&B segments are able to ramp up fully once operating condition normalizes. Furthermore, we expect high probability of securing new F&B corporate clients given the popularity of its current product offerings.

Source: Hong Leong Investment Bank Research - 20 Aug 2021