Focus Point Holdings Bhd
(July 9, 45 sen)
Maintain buy with an unchanged target price (TP) of 66 sen: Key takeaways from our recent meeting with the management of Focus Point Holdings Bhd are: i) improving food and beverage (F&B) segment; ii) resilient optical same store sales growth (SSSG) and iii) all these would mean financial year 2019 (FY19) will be a “growth” year.
Losses from the F&B segment is set to narrow further in FY19 following the closure of two underperforming Komugi outlets (Melaka and Leisure Mall) in Malaysia last year and implementation of cost-cutting measures. To recap, The F&B segment has been dragging down the group’s earnings since its inception in 2012 due to the competitive environment.
Recently, the management has completed a study on corporate sales, meaning supplying to third-party stores instead of owned-stores, which could yield higher returns. As such, going forward, the company will focus mainly on third-party sales (cake houses and convenient stores) instead of opening new outlets.
Currently, corporate sales account for 20% of the group’s F&B revenue. This is expected to increase to 50% over the next two to three years, in line with aggressive expansion plans of its corporate clients and new business opportunities stemming from the halal certification for its central kitchen.
As far as capacity is concerned, we believe Komugi’s central kitchen is able to meet with the increasing demand as it is currently operating at 60% capacity utilisation rate.
That earnings before interest and tax (Ebit) from the F&B segment have recently turned positive at RM300,000 and RM100,000 in the fourth quarter of 2018 (4Q18) and 1Q19 respectively. We maintain our FY19 and FY20 Ebit projections for the F&B segment at RM800,000 and RM1.5 million respectively.
However, at pre-tax profit level, we only expect the segment to record its first full-year profit in FY20 amounting to RM400,000 from estimated RM500,000 losses in FY19.
The management reiterates that optical sales are set to grow given the better consumer sentiment (optical Ebit grew by 123.6% year-on-year [y-o-y] in 1Q19) and more promotions (Focus Point 30th anniversary). The group is set to further increase its market share (around 20% currently) in Malaysia with a net target of five new optical outlets in 2019.
Moreover, we expect Focus Point to record a satisfactory SSSG of 6% due to the raising awareness of eye health by changing glasses more often now (fashion accessories).
We expect the quarterly profit to come between the range of between RM1 million and RM1.8 million, which is relatively higher against 2QFY18 earnings of RM800,000. We expect the better 2Q19 results performance to be underpinned by lower losses from the F&B segment and better optical sales performance.
We maintain our earnings projection of 18.8% and dividend yield of 3.4% for FY19. Note that the group has recently announced a dividend payout policy of paying not less than 30% of its earnings, which shows management’s confidence in its outlook. No change to our earnings projections.
We maintain “buy” on Focus Point with a TP of 66 sen per share, based on an unchanged price-earnings ratio of 12 times for 2020 earnings per share. — TA Securities, July 9
https://www.theedgemarkets.com/article/focus-point-sees-brighter-fb-outlook-fy19
