We are upbeat with the group’s solid results and reckon that the momentum will continue with the full reopening under endemicity. The strong YoY growth in 2Q22 was thanks to the robust footfall traffic in malls coupled with strong sales recorded in the southern region stores on the back of border reopening. Encouragingly, management shared that sales from older stores continue to grow after the store renovation and refurbishment. As for F&B, main corporate client continues to increase orders from outlet expansion and good demand. New potential clients include an airline customer and fast food chains. We tweak our FY22/23/24 forecasts by +31%/+18%/+13% to account for the robust sales momentum. Reiterate BUY, with higher TP of RM1.51 based on 14x PE pegged to mid-FY23 EPS.

We Held a Conference Call With FocusP and Remain Positive About the Group’s Outlook.

Optical flexing its muscle. We are upbeat with the group’s solid results and reckon that the momentum will continue with the full reopening under endemicity. The strong YoY growth in 2Q22 was thanks to the robust footfall traffic in malls coupled with strong sales recorded in southern region stores on the back of border reopening. We understand that the tourist momentums are encouraging with the sales in the southern region consisting of 60% Singaporean customers. The group has identified another two additional locations for its new Anggun Optometrist outlets (currently stands at 3 outlets). Recall that this new brand segment targets to cater for the untapped mid -high end Malay market. In total, FocusP has launched 7 new outlets as at 1H22 and 7 more are in the pipeline for 2H22. The expansion in optical business will enable the group to bargain for higher rebates from its key suppliers which are mainly the established foreign brands.

Still room to grow for optical segment. Encouragingly, management shared that sales continue to grow in Jul and Aug. Additionally, even older stores are contributing positively to the growth after store renovation and refurbishment. This was observed at one of FocusP’s older outlet in Wangsa Walk that showed an uptick in sales after the change to a new concept store with brand new equipment. We view this positi vely as expansion via store refurbishment requires lesser capex vs opening new outlets. Furthermore, growth will also be contributed by new optical corporate clients coming on board.

Komugi. The group recently launched a new street-shop store in Mahkota Cheras and we understand that sales have been robust beating the high sales in SS2 outlet. Moving forward, management is looking to expand another additional 2 street-shop outlets by 4Q22 as the rental is cheaper vs the mall’s outlet.

F&B corporate sales remain robust. FocusP main corporate client continues to contribute positively and is increasing orders from outlet expansion and good demand. We gather that the group is in the final stage to finalize its frozen macarons products. There has been slight delay as the group is waiting for the lab approval. This new innovation product will be supplied to the supermarket chain. New potential clients could come from an airline customer and fast food chains. Should the airline customer materializes and come on board this would bump up the CK2 utilization rate to 80% (currently stands at 60%).

Forecast. We tweak our FY22/23/24 forecasts by +31%/+18%/+13% to account for the robust sales momentum.

Maintain BUY, TP of RM1.51. In light of rising interest rates environment, we tweak our PE target lower to 14x (from 16x) which is broadly in line with our retail coverage. All in all, our TP increases from RM1.39 to RM1.51 based on mid-FY23 EPS. We remain confident on FocusP’s scalable business model as we reckon that both optical and F&B segments are poised to ramp up fully with resumption of economic activities.

Source: Hong Leong Investment Bank Research - 14 Sept 2022