• Keep BUY and MYR1.02 TP, 36% upside and c.5% yield. We attended Focus Point’s post-results briefing last Friday, and came away feeling upbeat on its growth prospects. The optical segment is expected to continue delivering stable earnings growth, benefiting from the structural expansion in the eyewear industry while the F&B segment is poised to sustain profitability from new business wins. Current below-mean valuation offers investors an opportunity to invest in a solid, diverse, and underappreciated market leader.

• FY23 results recap. FY23 revenue was up 4.9% despite coming from FY22’s high base, while net profit of MYR30.1m (-16.5% YoY) was in line. As per management, a one-off restoration cost provision of MYR1.8m and impairment loss on trade receivables of MYR0.8m was charged in 4Q23 to comply with the accounting standards post Main Market transfer.

• Optical. With 192 outlets (owned: 130, franchised: 62) as of FY23 (FY22: 186), management is planning to expand more aggressively, targeting to open 20 stores (owned: 10, franchise: 10) this year. It is confident with its robust outlet expansion plan despite the competitive market landscape with a low barrier to entry, emphasising that with FPHB’s strong brand equity and solid track record, it can easily secure prime locations in shopping centers and has already conquered many such locations over the years, effectively blocking competitors from entering. Additionally, management highlighted the southern region (comprising c.20% of outlets) as the best performing region in FY23, thanks to the strong spending power of visitors from Singapore. Meanwhile, management also noted that outlets in the central region have recently performed well due to a rebound in tourism.

• F&B. FPHB recently onboarded a coffee chain in January and has already commenced supplying, with material impact expected to be evident starting from 2Q24. Concurrently, the group is actively engaged in discussions with potential customers from various sectors including supermarket operators, coffee chains, and airline companies, and remains optimistic about securing new business opportunities. We highlight that any new order wins are anticipated to flow directly to its bottomline, as the current utilisation rate of its central kitchens is already at breakeven point. Furthermore, management highlighted the strong performance of existing customers is driven by new product launches and expansion plans. Additionally, its first frozen yogurt brand, "HAP&PI" is slated to open its first kiosk in Mid Valley Megamall on 20 Mar, while future expansion into malls with prime locations will be facilitated by its established track record with the malls.

• Forecast and valuation. We maintain our forecast and DCF-derived MYR1.02 TP (inclusive of a 4% ESG discount), implying 13.4x FY24F P/E or +0.5SD from its mean. Key risks: Major delays in expansion plans and a loss of key corporate customers for the F&B business.

Source: RHB Research - 26 Feb 2024