• Still BUY and MYR1.20 TP, 56% upside and 6% FY25F yield. We remain optimistic on Focus Point's optical segment which is poised for a strong SSSG despite the soft consumer sentiment thanks to its effective marketing initiatives. Turnaround of the F&B segment should sustain, supported by increased orders from existing customers and potential new business wins. We believe the current valuation of 8.5x FY25F P/E is attractive and unwarranted considering the company’s market leadership, strong brand equity, and solid business fundamentals.

• Sustained robust growth. We expect strong optical revenue growth from 1H24 to sustain into 2H24, supported by effective marketing strategies and growing myopia population. Management highlighted the successful introduction of AirDoc AI Fundus screening technology, which uses AI to detect eye conditions and has encouraged customers to opt for higher- quality lenses. This exclusive service is currently offered in 70 outlets, with plans to expand to 100 by FY25 to attract more premium-seeking customers and distinguish its offering from competitors.

• Continuous corporate client expansion. Corporate sales remain strong (1H24: +93.1% YoY), with corporate clients increasing from 500 to 600 QoQ after aggressive onboarding efforts. We expect this momentum to continue, driven by the rising competition among companies to offer employee benefits. We understand that Focus Point enhances its appeal to corporate customers by offering exclusive services, such as AI screening and preferential pricing compared to walk-in clients.

• F&B segment gaining momentum. The corporate segment has expanded its stock keeping unit (SKU) offerings to Family Mart since June, increasing from 13 SKUs to 19. Monthly sales from Family Mart have risen to MYR1.6-1.7m (vs MYR1.4-1.5m). It is also supplying to one ZUS Coffee outlet as part of a testing phase, with management awaiting feedback for a potential wider rollout in 4Q. Based on the company’s track record with corporate clients, we anticipate a positive outcome, which would improve central kitchen utilisation given ZUS's extensive store network. Meanwhile, Komugi's outlet sales have shown stable performance (1H24 sales: +21% YoY) and it is focused on improving GPM by reducing wastage. On the other hand, management plans to fine tune its product offering and pricing for HAP&PI frozen yoghurt, as this new brand has not met expectations. However, with a cautious approach and a low initial capex (MYR250k), we do not anticipate substantial gestation losses.

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

Source: RHB Research - 14 Oct 2024