• Still BUY and MYR1.20 TP, 52% upside and 6% FY25F yield. 9M24 results met expectations, driven by strong performance in the optical segment and improvements in the F&B wing. We expect the former to continue delivering robust performances despite soft consumer sentiment, supported by effective marketing initiatives. Concurrently, we think the F&B unit’s turnaround should sustain, driven by higher orders and potential new business wins. Current below-mean valuation presents an attractive entry point into a solid and diversified market leader.

• Within expectations. 9M24 core earnings of MYR24m (+22.5% YoY) met 65- 66% of our and Street’s full-year forecasts. Focus Point’s results are in line with expectations, and we expect a seasonally strong 4Q24.A second interim dividend of 1.75 sen (3Q23: 1.5 sen) was declared and will go ex on 5 Dec, bringing YTD DPS to 3.5 sen (9M23: 3 sen), ie within expectations.

• Results review. YoY, 9M24 sales rose 11.7% to MYR209.1m – contributed by growth in both the optical (+13.4%) and F&B (+5.4%) segments. The former’s performance was fuelled by network expansion – with four new owned stores and two franchised outlets (totalling 198 stores) – alongside >10% SSSG, which was attributed to effective marketing efforts and growing myopia within the local population. The F&B segment benefitted from increased corporate customer orders. 9M24 EBIT rose by 0.8ppts to 16.9%, supported by higher sales operating leverage and leaner operating costs. QoQ, 3Q24 revenue dipped slightly by 0.6% to MYR70.6m due to a lack of festive demand, leading to a 3.6% QoQ decline in core profit to MYR8.1m.

• Outlook. 4Q24F net profit should pick up, in our view, due to better seasonality from year-end festivities and school holidays. Beyond the immediate term, the optical segment is poised for continued strong topline growth, supported by effective marketing strategies, a growing myopic population, and expanding store network. In the F&B segment, the group has increased stock keeping unit or SKU offerings to Family Mart to 20 items from 13 since June, which we think will help boost central kitchen utilisation – this is given Family Mart’s extensive store network. Focus Point is also testing products at one ZUS Coffee outlet, and is awaiting feedback for a potential broader rollout. Meanwhile, management plans to refine the product offering and pricing for the HAP&PI frozen yogurt brand, which has yet to meet expectations.

• Forecast 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. 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 Securities Research - 22 Nov 2024