We remain optimistic about Focus Point’s future growth prospects on the back of i) expansion of new optical outlets, ii) turnaround of F&B division and iii) beneficiary of tourist spending. We maintain our Buy recommendation with an unchanged TP of RM1.11 based on PE multiple of 15.0x CY24 EPS.

Increasing Optical Presence

To recap, Focus Point’s FY23 revenue from the optical segment grew 4.4% YoY to RM211.5mn, notwithstanding the strong revenue base in prior year driven by the one-off EPF special withdrawal scheme of RM10k and the reopening of the economy in FY22. However, FY23 optical PBT declined by 11.1% to RM38.6mn due to higher rental costs from the opening of new outlets and staff costs. Note that the better FY23 sales were mainly driven by corporate sales (+33.3% YoY), which we believe is sustainable in FY24 amid expansion in corporate clients.

Also, we believe that eyewear business will remain resilient in 2024 amid the prevalence of myopia among Malaysians. Management is optimistic on optical business prospects, targeting to open 10 new outlets and 10 Sightsavers outlets (vs. net opening of 6 outlets in 2023). Note that the group has entered into a MOU with International Specialist Eye Centre (ISEC) to collaborate in the areas of patient referrals, post-operative optometry related shared care, pre and postoperative refractive surgery support. In addition, Focus Point will conduct more marketing and promotional campaigns to improve its market share.

F&B Performance Would Improve

In terms of food and beverage division, the group reported higher revenue of RM40.9mn, up 10.8% YoY in FY23. Note that retail F&B outlets and corporate sales grew by 14.4% and 7.6% respectively on the back of higher footfall, stronger marketing activities and higher utilisation rates of Central Kitchen1 and 2. We gather that there is a robust growth in sales orders from all existing corporate customers, except customer S who was hit by the boycott. Having said that, we are not over worried as Customer S’ sales accounted for less than 1% of total F&B sales for FY23.

For 2024, management targets to open 2 new Komugi outlets (vs. net opening of 1 outlet in 2023) in Central Region. In addition, Focus Point recently opened a new HAP&PI frozen yogurt kiosk at Mid Valley, which we think is too early to assess the performance. All in all, we believe the F&B division would turnaround with a PBT of RM4.8mn in FY24 versus a LBT of RM1.0mn in FY23, driven by: i) lower staff headcounts (over manpower from Jan to Sep 2023), ii) higher margins from frozen yogurt, iii) maiden contribution from new corporate clients and iv) higher orders from existing clients.

Beneficiary of Tourist Spending

Tourism Malaysia has expressed optimism that Malaysia would be able to meet its 5-7mn Chinese visitor’s target this year, representing a five-fold increase over the previous year. Note that Malaysia recorded about 1.4mn Chinese tourists out of a total of 20.1mn international tourist arrivals in CY23. Management believes that rising tourist spending would be one of the catalysts in boosting FY24 sales further, especially on the optical segment.

We understand that Johor was the best region for Focus Point in FY23 following the reopening of borders. Singaporeans were attracted by the weaker Ringgit and lower optical pricing of about 20%. Besides that, the group plans to engage with third parties (shopping malls) to join their privilege card program and tourist reward card. As such, we believe that Focus Point sales at tourist hotspot outlets (TRX, KLCC, Melaka and Johor) will grow in FY24.

Forecast

We forecast FY24 net profit to improve by 13.6% to RM34.2mn. Note that Focus Point FY23 net profit of RM30.2mn has already surpassed its pre-pandemic profit of RM9.9mn in FY19.

Valuation & Recommendation

We reiterate our Buy recommendation on Focus Point with an unchanged TP of RM1.11 based on a PE multiple of 15.0x CY24 EPS.

Source: TA Research - 8 May 2024