RHB Investment Bank (RHB), in its Malaysia Company Update today (Apr 5), said they recently caught up with Focus Point Vision Care Group’s management team to obtain positive updates on its optical and F&B business.
RHB likes the company as they believe its current valuation is attractive and unwarranted, considering the robust growth of optical business and sustainable F&B business turnaround. FPHB should outperform most consumer retail peers amidst subdued discretionary spending on the back of heightened inflationary pressures.
RHB keeps BUY and MYR1.02 TP, 45% upside and c.5% yield.
Solid despite cautious consumer sentiment. Notwithstanding the soft retail environment, management sees positive growth momentum for its optical business (81% of FY23 sales) so far in FY24F. This is likely fuelled by the robust demand for eyewear products on rising myopic population.
In addition, the strategy to target higher-income consumer groups is also key to the resiliency, with the said groups making up c.80% of its customers.
Meanwhile, RHB gathers that the tourist-driven outlet cluster eg. KLCC and Pavilion, are seeing overwhelming footfalls whilst the opening of a Focus Point Signature outlet in The Exchange TRX in Nov 2023 is also timely to capitalise on the recovery in tourist arrivals.
Management also shared that Johor (second-largest state by outlets) continues to see strong sales traction.
F&B business on the right track. To recap, FPHB staged an earnings turnaround in its F&B segment (16% of FY23 sales) in 4Q23 after successfully resolving the issue of over-manpower in its central kitchens.
Hence, RHB expects the profitability to sustain going forward considering the stable volumes of its existing corporate customers and in-house Komugi outlets.
It targets to add at least two Komugi stores in FY24F to the current total of 12 stores. The additions, together with the ramp-up in volumes by newer corporate customers, including ZUS Coffee and Cotti Coffee should drive topline growth in the F&B business (our FY24 forecast: 13%).
It also launched the Hap&Pi frozen yogurt brand, with the first kiosk outlet opening in March.
Forecast and valuation. Post meeting, RHB makes no changes to their earnings forecast and DCF-derived MYR1.02 TP (inclusive of a 4% ESG discount), implying 13.4x FY24F P/E or +1SD from its mean.
This is in line with the valuation ascribed to other consumer retail stocks under RHB’s coverage.
Key risks: Major delays in expansion plans and a loss of key corporate customers for the F&B business.
