• Keep BUY and MYR1.12 TP, 39% upside and 5% yield. After meeting up with Focus Point’s management, we remain upbeat about the company’s outlook. The robust topline growth in 1Q24 (+15.4% YoY) is expected to sustain into 2Q24F, thanks to its effective marketing strategy and rising myopic population. The current valuation appears compelling, given FOCUSP’s ability to drive industry-leading growth underpinned by its market leadership and strong brand equity in the optical business.

• Building brand equity for sustainable growth. Retail Group Malaysia revised its 2024 retail sales growth expectations downward to 3.6% from 4% due to a subdued 2Q outlook (forecast +1.7% YoY). Notwithstanding, we expect FOCUSP’s optical segment to outperform the broader retail industry, with management observing robust SSSG trend in 2Q24F (1Q24 SSSG: +11% YoY). This could be attributed to FOCUSP’s aggressive brand-building initiatives, which include collaborative marketing campaigns with suppliers and targeted brand awareness roadshows and exhibitions. These initiatives are effective in raising brand visibility and drawing new customers by creating acquisition opportunities. We gather that FOCUSP’s 360 Advanced Primary Eye Care campaign (more details on Page 3) is yielding positive results by enhancing customer engagement, and the company is seeing the consumer uptrading trend and bigger spending ticket size.

• Expansion plans intact. With 193 outlets (130 owned, 63 franchised) as of 1Q24, FOCUSP aims to open 18 additional stores (8 owned, 10 franchised) this year to expand into untapped areas, mainly locations not within shopping malls. Meanwhile, optical corporate sales (7% of optical sales) have doubled (+109% YoY) in 1Q24 due to onboarding of new corporate customers through collaboration with a third-party administrator. This revenue base is expected to remain consistent but has tremendous upside potential as more corporates are upgrading staff benefits to remain competitive in the employment market.

• Improving F&B prospects. We foresee its F&B segment to continue riding on the expansion of its largest corporate customer, FamilyMart. Additional orders from existing clients and contributions from new corporate customers (ZUS Coffee and Cotti Coffee) are expected to enhance central kitchen utilisation above the 70% breakeven level. The company also plans to add two new Komugi outlets in FY24 to expand its retail presence. A second HAP&PI frozen yogurt brand store is scheduled to open in Johor following the satisfactory performance of the initial store in MidValley, Kuala Lumpur.

• Forecast and valuation. We make no changes to our earnings forecasts and DCF-derived MYR1.12 TP (inclusive of a 2% ESG discount), which implies 13.9x FY24F P/E or +1SD from the mean. This is in line with the valuations ascribed to other consumer retail stocks under our coverage.

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

Source: RHB Research - 28 Jun 2024