• Keep BUY and MYR1.02 TP, 45% upside and c.5% yield. We recently caught up with Focus Point’s management team to obtain positive updates on its optical and F&B business. We continue to like the company as we believe its current valuation is attractive and unwarranted, considering the robust growth of optical business and sustainable F&B business turnaround. FPHB should outperform most consumer retail peers amidst subdued discretionary spending on the back of heightened inflationary pressures.

• Solid despite cautious consumer sentiment. Notwithstanding the soft retail environment, management sees positive growth momentum for its optical business (81% of FY23 sales) so far in FY24F. This is likely fuelled by the robust demand for eyewear products on rising myopic population. In addition, the strategy to target higher-income consumer groups is also key to the resiliency, with the said groups making up c.80% of its customers. Meanwhile, we gather that the tourist-driven outlet cluster eg KLCC and Pavilion, are seeing overwhelming footfalls whilst the opening of a Focus Point Signature outlet in The Exchange TRX in Nov 2023 is also timely to capitalise on the recovery in tourist arrivals. Management also shared that Johor (second-largest state by outlets) continues to see strong sales traction.

• F&B business on the right track. To recap, FPHB staged an earnings turnaround in its F&B segment (16% of FY23 sales) in 4Q23 after successfully resolving the issue of over-manpower in its central kitchens. Hence, we expect the profitability to sustain going forward considering the stable volumes of its existing corporate customers and in-house Komugi outlets. It targets to add at least two Komugi stores in FY24F to the current total of 12 stores. The additions, together with the ramp-up in volumes by newer corporate customers, including ZUS Coffee and Cotti Coffee (refer Page 4 for more information) should drive topline growth in the F&B business (our FY24 forecast: 13%). It also launched the Hap&Pi frozen yogurt brand (refer Page 3 for our ground check), with the first kiosk outlet opening in March.

• Forecast and valuation. Post meeting, we make no changes to our earnings forecast and DCF-derived MYR1.02 TP (inclusive of a 4% ESG discount), implying 13.4x FY24F P/E or +1SD from its mean. This is in line with the valuation ascribed to other consumer retail stocks under our coverage. Key risks: Major delays in expansion plans and a loss of key corporate customers for the F&B business.

Source: RHB Research - 5 Apr 2024