2Q21 results were impacted by Phase 1 restrictions that hampered June sales which was mainly dragged by the optical division. F&B, on the contrary, chalked in better revenue from the higher corporate sales and stable contribution from new Komugi outlet in SS2. Management shared that CK2 is currently running at 50% utilisation rate, an increase from 20-30% previously. Management is optimistic with the pathway in returning to normalcy thanks to the ramp up of vaccination rate that would provide further boost for its contact lens business as offices reopen. Reiterate BUY, with unchanged TP of RM1.03 based on 22x PE pegged to FY22 EPS.

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

2Q21 affected by Phase 1. We understand that April sustained strong sales momentum and chalked in record high sales for both the optical and F&B segments. However, the subsequent Phase 1 restrictions hampered June sales with the lower foot traffic in retail areas which dragged the group’s optical division. F&B, on the contrary, registered better revenue from the higher corporate sales and stable sales from new Komugi outlet in SS2. Note that this segment recorded a growth of +22.8% QoQ and +96.2% YoY in 2Q21.

Still optimistic outlook on optical division. With the various restrictions and closure of retail outlets, we gather that FocusP are able to receive rental rebates from landlords. Furthermore, the group also managed to save some staff costs with the RM1m wage subsidy from Perkeso and 60% worker’s capacity restrictions which shortened the workdays for its employees to 4 days a week. Management is optimistic with the pathway in returning to normalcy thanks to the ramp up of vaccination rate that would provide further boost for its contact lens business as offices reopen.

Healthy utilization for second central kitchen (CK2). Management shared that CK2 is currently running at 50% utilisation rate, an increase from 20-30% previously. We understand that this is driven by Customer S’ encouraging order to supply to their café outlets in West Malaysia (c.250 outlets). Currently, this stands at 6 SKUs with better than-expected contributions of RM250-300k per month vs earlier guidance of RM200k. By year-end, we estimate FocusP’s CK2 to achieve an 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 4Q21, a slight delay from initial 3Q21 guidance.

Further growth for F&B segment. We understand that the number of SKUs for DDD is expected to increase once DDD’s new Tropicana Gardens Mall outlet is opened (launch delayed from scheduled Aug 21). The group expects to launch 9 SKUs to Tea customer pending on the certification of ISO22000. Additionally, prospects are also looking up for its largest corporate client with target of 14-15 SKUs by year end as it is aggressively opening more outlets. As for Komugi, another new street-shop outlet in Taipan is scheduled to open in November with the resumption of constructions work.

Maintain BUY, TP of RM1.03. We maintain BUY rating on FocusP with unchanged TP of RM1.03 pegged to 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 - 7 Sept 2021