• Keep BUY, new MYR1.20 TP from MYR1.12, 51% upside with 5% FY24F yield. Focus Point’s 1H24 results are in line, driven by robust growth in the optical segment and promising progress in the F&B unit. We expect the group to continue delivering a robust performance amidst soft consumer sentiment, supported by its solid fundamentals, thereby outperforming most of its retail peers. Its current valuation remains compelling, given its sustainable earnings growth and solid execution by management.

• Within expectations. 1H24 core profit of MYR15.9m (+19.9% YoY) met 43% and 44% of our and consensus full-year forecasts. The results are in line with expectations, as we expect a stronger 2H24 ahead due to seasonal factors.

• Results review. YoY, 1H24 revenue rose by 13.2% to MYR138.9m, driven by growth in both the optical (+15%) and F&B (+9.7%) segments. The growth in the optical segment was due to store network expansion (opened three owned and two franchised stores, bringing the total to 198 outlets) and >10% SSSG due to effective brand-building initiatives. In the meantime, its F&B segment recorded a pick-up in orders from corporate customers. 1H24 EBIT rose by 0.7ppts to 17%, supported by higher sales operating leverage and leaner operating costs. QoQ, 2Q24 revenue grew by 3.4% to MYR70.6m, reflecting improved seasonality for F&B and continued strength in the optical segment. Consequently, 2Q24 core profit grew by 13.9% QoQ to MYR8.4m.

• Outlook. FOCUSP’s optical segment should continue to deliver robust topline growth, supported by enhanced brand equity through effective marketing, a growing myopic population, and store network growth (it may 18 new stores this year, including eight owned and 10 franchised). Also, recent positive developments such as salary hikes for civil servants and the flexible Employees Provident Fund withdrawal scheme should benefit the group. Meanwhile, the F&B segment's turnaround should be sustained, with new orders from FamilyMart starting in July leading to an increase in store- keeping units to 24 (from 13). This should boost monthly sales by an additional MYR1m, bringing the total to MYR3m. In addition, the performance of the first HAP&PI frozen yogurt outlet at Mid Valley has been satisfactory, so FOCUSP plans to open a second one in Johor.

• Forecast and ratings. Post results, we make no changes to our earnings forecasts. However, we raise our DCF-derived TP to MYR1.20 TP (inclusive of a 2% ESG discount) after rolling over our DCF valuation base year to FY25F. Our TP implies 13.1x FY25F P/E or +1SD from the mean. This is in line with the valuations ascribed to other consumer retail stocks under our coverage.

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

Source: RHB Research - 23 Aug 2024