RHB Investment Research Reports

Focus Point - Off to a Good Start; Keep BUY

Publish date: Mon, 27 May 2024, 10:16 AM
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An official blog in I3investor to publish research reports provided by RHB Research team.

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  • Keep BUY, new MYR1.12 TP from MYR1.02, 35% upside and 5% yield. 1Q24 results exceeded expectations thanks to stronger-than-expected performance by the optical segment. The F&B unit now is poised for better seasonality post Ramadan, and we anticipate sustainable profitability ahead. The current valuation is attractive, considering Focus Point’s solid business fundamentals with market leadership position in the optical segment.
  • Above expectations. 1Q24 core profit of MYR7.5m (+24.2% YoY) met 21% of our and Street’s full-year forecasts, above the 2-year historical average of 16-18%. The positive deviation was due to stronger-than-expected sales from the optical segment. A first interim DPS of 1.75 sen was declared (1Q23: 1.5 sen) and will go ex on 7 Jun.
  • Results review. YoY, 1Q24 revenue rose 14.5% to MYR68.3m, mainly contributed by a strong performance from the optical segment (+15.4%), especially from the central and southern regions. This is likely from higher tourist arrivals and Singaporeans’ robust spending power. 1Q23 EBIT margin rose 0.8ppts to 16.4% thanks to higher sales and leaner operating costs following the layoff of excess workers at the central kitchen since 4Q23. QoQ, 1Q24 revenue fell 7.3% on softer seasonality after a strong year-end performance. Consequently, 1Q24 core profit fell 43.2% QoQ to MYR7.5m.
  • Outlook. Demand within FOCUSP's optical segment is set to remain robust due to the rise in myopia numbers amongst the local population, while the revised salary scheme for civil servants and Employees Provident Fund account restructuring may further boost demand. The group is on track to open 20 optical outlets (including 10 franchised stores) in FY24 to increase market share. The F&B segment is also poised for a profitable FY24 amidst seasonally stronger quarters ahead and after resolving the over-manpower issue at the central kitchen since 4Q23. Additionally, orders from new corporate customers have already commenced and are set to have a material impact from 2H24. With increased volumes from existing customers, we forecast the central kitchen’s utilisation to improve from the current break- even level of 70-80% by FY24. Additionally, the HAP&PI frozen yogurt brand is doing well, with a second store set to open in Johor soon.
  • Forecast and ratings. Post FOCUSP’s results, we raise our FY24F-26F earnings by 4-5% after assuming stronger sales for the optical segment. We also revise the group’s ESG score to 2.9 from 2.8 to recognise efforts on emissions disclosures. Consequently, our DCF-derived TP is raised to MYR1.12, implying 13.9x 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 - 27 May 2024

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