FOCUSP : Pending breakout

Upgrade to overweight. We upgraded our sector call for consumer from Neutral to Overweight, citing an improving outlook driven by (i) potential margin expansion from moderated raw material prices; (ii) consumption boosters such as the EPF Account 3 and a civil servants pay hike; and (iii) a positive macroeconomic environment characterized by stable employment levels and increased retail spending. We see the government's announcements regarding the EPF Account 3 and civil servant pay hike (effective December 2024) as significant drivers that will enhance disposable income and bolster the consumer sector outlook. Moreover, the highly liquid nature of Akaun Fleksibel suggests a potential for structurally higher consumer spending patterns. We reckon that mid-to-higher-end F&B and retail operators such as FOCUSP will benefit the most from these developments.

Strong earnings growth anticipated. Following a 17% YoY decline in FY23 bottom line, we project FOCUSP’s earnings to resume their upward trajectory, with anticipated growth of 24.9% in FY24 and 9.5% in FY25. Notably, FOCUSP's 1Q24 demonstrated encouraging YoY growth across all three segments – optical, F&B, and franchise management. The optical segment, in particular, saw the highest YoY growth at 15.4%, driven by increased tourist arrivals, expansion of optical stores, and the acquisition of new corporate clients. We expect this positive momentum to continue throughout FY24, supported by ongoing business expansion initiatives in optical and F&B sectors, including store expansions and B2B client acquisitions. Additionally, interest in the stock is expected to rise in 2H24, traditionally a stronger earnings period for the group.

Undemanding valuation. At RM0.85, FOCUSP is trading at an undemanding FY25f P/E of 9.5x (28% discount against its 5-year average of 13.2x). FOCUSP remains one of HLIB’s top picks with a TP of RM1.14.

Pending ascending triangle breakout. FOCUSP is poised for an ascending triangle breakout, with indicators showing an upward bias. A successful breakout above the long-term resistance at RM0.85 will spur greater upside toward RM0.89-0.98-1.00. Cut loss at RM0.79.

Collection range: RM0.82-0.83-0.85

Upside targets: RM0.89-0.98-1.00

Cut loss: RM0.79

Source: Hong Leong Investment Bank Research - 18 Jul 2024