• Maintain BUY and MYR1.20 TP, 50% upside with 5% yield. We remain positive on Focus Point’s prospects following its post-results briefing last Friday. We anticipate FY24 earnings to reach a new high with stronger seasonal factors in 2H, driven by strong brand equity in the optical segment and a sustained turnaround in the F&B business. Its current market valuation of 8.7x FY25F P/E is undemanding, considering the company’s experienced management team, solid earnings delivery, and attractive high ROEs.

• Key takeaways from results call last Friday: i) Optical sales are on track to hit a new high in FY24; ii) its F&B central kitchen capacity is expected to increase, with new order wins; iii) the HAP&PI frozen yogurt expansion has been slightly delayed. To recap, 1H24 core earnings grew 19.9% YoY, driven by robust growth in the optical segment and a turnaround in the F&B unit.

• On track to hit a new high. Management is optimistic about the performance of its optical business in 2H, and aims to record new highs in FY24, driven by its ongoing brand-building initiatives. The company also plans to continue expanding (eight owned and 10 franchised outlets) in prime locations under different brands to cater to various demographics and broaden its market presence. Meanwhile, corporate sales (1H24: +93.1% YoY) are expected to grow rapidly as FOCUSP partners with third-party administrators and on- boards new corporate clients, driven by companies enhancing staff benefits to remain competitive in the job market.

• Sustaining the turnaround. FamilyMart (its largest corporate customer for the F&B segment) has increased its orders from 14 to 20 store-keeping units or SKUs over the past four months. Additionally, FOCUSP has on-boarded ZUS Coffee, and begun supplying two outlets with plans for a broader rollout in 4Q24. This increase in orders should boost the central kitchen's utilisation rate (currently c.70%) and sustain the turnaround (2Q24 PBT: MYR0.4m) for the F&B segment. With the aggressive expansion plans of its corporate customers, which will lead to a further rise in orders, management indicated that a third central kitchen will be set up if its current capacity is fully utilised.

• Small hiccup. Management decided to delay the expansion of HAP&PI's second frozen yogurt kiosk in Johor, as the first kiosk in Midvalley is still gaining traction. It will prioritise on improving product quality and marketing to drive sales. With a cautious approach and a low initial capex (MYR250k), we do not anticipate significant gestation losses from this venture.

• Forecast and ratings. Post briefing, we make no changes to our earnings forecasts and DCF-derived MYR1.20 TP (inclusive of a 2% ESG discount), which 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 - 26 Aug 2024