Despite operating in a highly competitive industry, Focus Point has managed to achieve and maintain its market leadership position, largely hinges on its extensive nationwide reach offering diverse range of eyecare products and services at competitive pricing. Focus Point had also diversified into the F&B business, with a total of 32 stores supported by 2 central kitchens. We foresee Focus Point’s earnings to be predominately driven by its optical segment, on the back of the rising eyewear and eyecare awareness, supported by its ongoing store expansion strategy. Additionally, we expect the F&B segment to deliver meaningful earnings contribution going forward, driven by higher utilisation rates at its central kitchens and lower manpower costs. We forecast a 3-year core PAT CAGR of 15% for FY24-26F. All told, we initiate coverage on Focus Point, with an Outperform call and a TP of RM1.00, based on 11x PE multiple to its FY25F EPS.

• Market leader in Malaysia’s eyewear retail industry. After opening its first Focus Point store back in 1989 in Muar, Johor, Focus Point have since expanded as the market leader in Malaysia’s optical and eyewear retail industry, with a total of 196 stores to date. The optical segment has been the largest revenue contributor, accounting for c.80% of the group’s revenue. Focus Point then ventured into the F&B segment by opening its own bakery, Komugi. The group currently owns 12 Komugi outlets in Klang Valley, with an additional 19 franchise operated stores in Philippines. It has also recently opened its first frozen yogurt outlet under the brand name, HAP&PI, in Kuala Lumpur.

• 2-pronged strategy to drive earnings growth. We foresee Focus Point’s earnings to grow at a 3-year CAGR of 15%, mainly driven by rising eyewear demand, new store openings for both optical and F&B retail outlets as well as a turnaround in the F&B segment. We opine that Focus Point’s long-term growth will be supported by rising demand for eye healthcare, given the surge in vision impairment cases (eg: myopia and hyperopia), ageing population, growing awareness of eye health as well as rising disposable income among consumers. Additionally, we expect the F&B segment’s profitability to improve, on the back of higher utilisation rates in its central kitchens due to higher orders from corporate clients.

• Initiate with an Outperform call. We believe that Focus Point’s current valuation is attractive, as it is currently trading at 8.8x forward PE, which is slightly below its average 5-year historical forward PE. We note that Focus Point does not have a direct local peer as there are no listed retailers that are in the optical business. Therefore, we benchmark Focus Point with other consumer related retailers and ascribe a c.20% discount to the average PE of 14x. We find the valuation justified, given Focus Point’s smaller market cap and profit base. All told, we initiate coverage on Focus Point with an Outperform call, based on a 11x FY25F EPS.

Source: PublicInvest Research - 3 Oct 2024