• Initiating coverage with a BUY and DCF-derived MYR1.02 TP, 48% upside and c.6% yield. We believe Focus Point will be able to capitalise on the rising myopic population thanks to its market leadership and entrenched network. We foresee a more stable earnings outlook for the F&B unit after the accumulation of valuable experience over years and with sound expansion plans in place. Trading at a >50% discount to peer average, the current valuation has yet to price in FPHB’s solid business fundamentals, exciting growth prospects, superior profitability, and ROE.

• Eyeing for more opportunities with growing myopic population. Malaysia’s eyewear market is expected to record an accelerating 5-year CAGR (2024- 28F) of 6.6%, on the back of increased screen time leading to vision issues and a growing population with presbyopia due to an aging population. We believe this opportunity will be well captured by FPHB considering its market leading position with an extensive store network of 189 outlets as of 3Q23 and various store formats to cater to consumers of different income groups. We highlight this business has consistently shown steady growth and superior profitability (FY22 net margin of c.15% vs peer average of 10%). Moving forward, the group is planning to open 20 outlets (inclusive of 10 franchised stores) in FY24F, which will support our forecasted 12% and 11% growth in segmental revenue and PBT.

• F&B: The next avenue for growth. After chalking up 9M23 segmental LBT of MYR1.2m, we believe an earnings turnaround is imminent as the main drag in having excess workers was fully resolved in Sep 2023. Venturing into the F&B business in 2012, management has accumulated valuable experience and expertise in managing both the F&B retail and central kitchen operations. As such, we look forward to more stable earnings. Plans for this segment include the expansion of the Komugi bakery outlets (3-4 outlets targeted for FY24F) and to secure more corporate customers to fill up the capacity of its central kitchen (current utilisation rate: 70%). On top of that, it is also looking to launch a frozen yogurt brand in view of the growing demand and lucrative profitability.

• Forecast and valuation. We forecast FPHB to grow at a 5-year CAGR of 30% to MYR40.2m in FY25F – driven by the steady demand for optical and F&B products, outlet expansions, healthy SSSG, and market share gains. Our MYR1.02 TP implies a 13.5x FY24F P/E, and is in line with comparable listed consumer retail peers. This is justified by its market leadership position, structural growth in eyewear industry, and above-industry margins and ROE. We apply a 4% discount to reach our TP, based on its ESG score of 2.8.

• Key risks: Major delay in expansion plans and loss of key corporate customers for the F&B business.

Source: RHB Research - 8 Feb 2024