• Keep BUY and MYR1.12 TP, 37% upside with c.5% FY24F yield. We emerged from Focus Point’s post-results briefing last Friday feeling upbeat on its future prospects. We continue to like FOCUSP’s dominant position in the optical segment with strong brand equity, on top of the promising traction seen in its F&B segment. Its current valuation is undemanding, considering the group’s solid business fundamentals, robust growth trajectory, and attractive high ROEs.

• Optical market leadership. 1Q24 optical sales growth was robust despite minimal store additions (SSSG: +11% YoY), likely outperforming most retailers (RGM forecasted 4% retail sales growth for 2024). This was on: i) The growing number of myopic persons (due to increased screen time); and ii) FOCUSP's dynamic marketing and promotional initiatives (see page 3). Unlike its rivals, FOCUSP has been active in holding more roadshows and marketing activities to build brand visibility and gain market share. Additionally, corporate optical sales (7% of total optical sales) doubled (+109% YoY), with intensified collaboration with third-party administrators (typically insurance firms with expertise in managing employee benefit claim processes) to onboard corporate customers. Management guided that the strong sales growth in 1Q24 has been maintained into 2Q24F so far, with expansion plans progressing smoothly (targeting 18 new outlets in 2024). Moreover, the revised civil servant salary schemes and the restructuring of Employees Provident Fund accounts could further boost sales.

• F&B unit gaining traction. Notwithstanding a seasonally soft 1Q24 for F&B due to Ramadhan, the group is confident that this segment will be profitable in FY24, following the layoff of excess workers at the central kitchen since 4Q23. Its largest corporate customer, Family Mart (80% of F&B revenue), will increase orders for stock-keeping units from 13 to 24 from July onwards – this is expected to generate an additional MYR1m in sales per month (up from the current MYR2m). Meanwhile, recently-onboarded customers (ZUS Coffee and Cotti Coffee) are still in the pilot phase, but are expected to increase orders once the products are fully rolled out to all their stores across Malaysia. This should boost the utilisation rate of its central kitchen to 80- 90% by end-FY24 from the current 70% breakeven level. Additionally, management plans to continue improving product quality and offer more toppings for its new HAP&PI frozen yogurt brand, while also targeting the opening of a second store in Johor in Sep 2024.

• Forecast and valuation. Post briefing, we make no changes to our earnings forecasts and DCF-derived MYR1.12 TP (inclusive of a 2% ESG discount), which implies 13.9x FY24F P/E or +1SD from the mean. This is in line with the valuations ascribed to other consumer retail stocks under our coverage.

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

Source: RHB Research - 27 May 2024