RHB Investment Research Reports

Focus Point - F&B Business Turning Around; BUY

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Publish date: Fri, 23 Feb 2024, 04:08 PM
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  • Maintain BUY and MYR1.02 TP, 33% upside and c.5% yield. Focus Point's FY23 results met expectations, with the F&B segment turning around after incurring a 9M23 LBT of MYR1.2m. We believe the current below-mean valuation is compelling, considering FPHB’s solid business fundamentals and market leadership in the optical business to capture the structural growth in the eyewear industry, as well as the growth prospects of the F&B segment.
  • Met expectations. FY23 core profit of MYR30.1m (-16.5% YoY) was at 102% and 97% of our and Street’s full-year forecasts – in line with expectations.
  • Results review. YoY, FY23 revenue rose 4.9% to MYR260.9m despite coming from FY22’s high base – which was boosted by the economic reopening and EPF withdrawals – thanks to low to mid-single digit SSSG from the optical business and stronger orders from corporate customers in the F&B segment. FY23 EBIT margin fell 3.9ppts to 17%, dragged by excess workers in 9M23. QoQ, 4Q23 revenue rose 14.2% to MYR73.7m thanks to favourable seasonal factors during the year-end holidays. Together with the F&B segment’s turnaround after laying off excess workers, core earnings rose 65.7% QoQ to MYR10.5m.
  • Outlook. We believe the turnaround in the F&B business will be sustained due to a leaner cost structure after rightsizing its workforce. FPHB also stands to benefit from increased orders from its existing customers, given its aggressive expansion efforts. Meanwhile, management is in talks with several potential new customers to utilise the remaining capacity of its central kitchen. With the central kitchens' current utilisation rate already at the breakeven point, we highlight that any new sales or business wins will contribute to margin upside. On the other hand, the optical segment is poised to remain resilient and see steady growth, given the rising myopic population in the digital age, post pandemic. Leveraging its well-established brand equity, the group plans to open 20 additional outlets (including 10 franchised stores) in FY24F to enhance its market share and capitalise on the growing demand for optical products.
  • Forecast and valuation. Our FY24-25F earnings forecasts are largely unchanged, except for the minor effect from the model up-keeping exercise. We also introduce FY26F earnings (+10% YoY). We maintain our DCF- derived MYR1.02 TP (inclusive of a 4% ESG discount), implying 13.4x FY24F P/E or +0.5SD from the mean.
  • Key risks: Major delays in expansion plans and a loss of key corporate customers for the F&B business.

Source: RHB Research - 23 Feb 2024

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