RHB Investment Bank (RHB IB) has initiated coverage for Focus Point Holdings Bhd with a BUY rating of 70 sen and discounted cash flow (DCF)-derived target price (TP) of RM1.02.
The research house said the rating was as it believes that Focus Point will be able to capitalise on the rising myopic population thanks to its market leadership and entrenched network.
“We foresee a more stable earnings outlook for the food and beverage (F&B) unit after the accumulation of valuable experience over years and with sound expansion plans in place.
“Trading at a more than 50% discount to peer average, the current valuation has yet to price in the group’s solid business fundamentals, exciting growth prospects, superior profitability, and return on equity (ROE),” it said in its Malaysia Initiating Coverage today (Feb 8).
RHB IB forecasted that Focus Point will be growing at 5-year compound annual growth rate (CAGR) of 30% to RM40.2 million in FY25F.
“This is driven by the steady demand for optical and F&B products, outlet expansions, healthy same-store sales growth (SSSG), and market share gains.
“Our RM1.02 TP implies a 13.5x FY24F P/E, and is in line with comparable listed consumer retail peers. This is justified by its market leadership position, structural growth in eyewear industry, and above-industry margins and ROE.
“We apply a 4% discount to reach our TP, based on its ESG score of 2.8,” it said.
According to RHB IB, Malaysia’s eyewear market is expected to record an accelerating 5-year CAGR (2024- 28F) of 6.6%, on the back of increased screen time leading to vision issues and a growing population with presbyopia due to an aging population.
“We believe this opportunity will be well captured by the group considering its market leading position with an extensive store network of 189 outlets as of 3Q23 and various store formats to cater to consumers of different income groups.
“We highlight this business has consistently shown steady growth and superior profitability, with FY22 net margin of 15% compared to peer average of 10%.
“Moving forward, the group is planning to open 20 outlets, inclusive of 10 franchised stores in FY24F, which will support our forecasted 12% and 11% growth in segmental revenue and PBT,” it added.
Meanwhile, its F&B segment, which it ventured in 2012, could be the next avenue for growth.
“We believe an earnings turnaround is imminent as the main drag in having excess workers was fully resolved in September 2023.
“Since its inception, the management has accumulated valuable experience and expertise in managing both the F&B retail and central kitchen operations.
“As such, we look forward to more stable earnings. Plans for this segment include the expansion of the its Japanese-inspired Komugi bakery outlets, targeting 3 to 4 outlets for FY24F.
“It also plans to secure more corporate customers to fill up the capacity of its central kitchen, with current utilisation rate of 70%. On top of that, it is also looking to launch a frozen yogurt brand in view of the growing demand and lucrative profitability.”
The key risks to RHB IB’s call is major delay in expansion plans and loss of key corporate customers for the F&B business.
