Key takeaways from our recent meeting with Focus Point’s management are: i) corporate sales to drive the optical segment, ii) improving F&B prospects and iii) expansion plans on track. We maintain our Buy recommendation with an unchanged TP of RM1.11 based on PE multiple of 14.0x CY25 EPS.

Growing Corporate Sales Channel for Optical Segment

To recap, Focus Point’s 1Q24 optical sales rose 15.4% YoY to RM56.0mn mainly driven by higher retail outlets and corporate sales, which increased 13.9% and 108.5% to RM50.5mn and RM3.3mn respectively. The increase in sales outgrew the average retail sales growth of 7.8% in 1Q24 as reported by Retail Group Malaysia (RGM). Note that RGM recently cut its estimates for retail sales growth to 3.6% in 2024 (vs. 4.0% in March) to account for a weaker 2Q24 data and flagged continued concerns over rising cost of living as the biggest challenge for the retail industry.

Despite that, we believe Focus Point’s sales would remain resilient as eyewear is a necessity, which is less prone to economic slowdown. In fact, the management is optimistic on the business environment, targeting to open 8 wholly-owned outlets and 10 Sightsavers franchise outlets in 2024 (vs. net opening of 6 outlets in 2023). In 2H24, the group is targeted to open its wholly-owned outlets at East Coast Mall Kuantan, Sunshine Central Penang, Cengal Jaya Mall Kedah, 118 Mall and Mayang Mall Terengganu. Meanwhile, we believe that optical corporate sales would grow by at least 70% in 2024 as the group is in the midst of recruiting corporate customers (currently 148) to enhance its recurring sales.

Increasing Central Kitchen Utilisation

As for its F&B segment, both retail (+21.8% YoY to RM5.1mn) and corporate sales (+6.2% YoY to RM5.0mn) grew positively in 1Q24 on the back of: i) stronger marketing activities, ii) opening of new HAP & Pi store and iii) new F&B corporate clients such as Zus Coffee and Cotti Coffee. We understand that Central Kitchen 1(CK1) and Central Kitchen 2’s (CK2) utilisation rates are at 65-75%.

Moving forward, we gather that corporate sales would remain the priority. Its largest corporate customer, Family Mart would be gradually adding circa-11 SKUs (currently 13) from July to December 2024. Thus, we expect the F&B corporate sales to improve by about RM1mn per month. Expansion wise, Focus Point plans to open 2 new Komugi outlets (KL East Mall and Sunway Pyramid) in 2024 and a second HAP & Pi kiosk in Midvalley Southkey, JB.

Results Preview

With regards to 2Q24 results, we expect quarterly profit to improve to RM7.5- 9.0mn (vs. RM7.4mn net profit in 1Q24) driven by higher optical sales and operating efficiency.

Forecast

No change to our FY24-26 earnings projections

Valuation & Recommendation

We maintain our Buy recommendation on the stock with an unchanged TP of RM1.11 based on a PE multiple of 14.0x CY25 EPS.

Source: TA Research - 15 Jul 2024