HLIB raises Focus Point target price to 78 sen on stronger earnings outlook

TheEdge Thu, Feb 04, 2021 11:15am - 3 years View Original


KUALA LUMPUR (Feb 4): Hong Leong Investment Bank (HLIB) Research has downgraded Focus Point Holdings Bhd (FocusP) to "hold" at 76 sen as it reckoned the stock is now fairly valued.

However, in a note today, the research house said it had raised its target price (TP) to 78 sen, from 68 sen previously, underpinned by a stronger earnings outlook for the fourth quarter ended Dec 31, 2020 (4QFY20).

HLIB analyst Gan Huan Wen said although the implementation of conditional movement control order (CMCO) restrictions alongside the Covid-19 case resurgence resulted in lower foot traffic in retail areas in October and November, management guided that sales began to pick up in December due to the year-end festive season.

“Seasonally, 4Q is FocusP’s strongest quarter as the optical division receives rebates from its major suppliers for meeting sales targets for the year (core PAT [profit after tax] for 4QFY18 and 4QFY19 accounted for 62.7% and 47.7% of full-year earnings respectively),” added the analyst, expecting FocusP to release its 4QFY20 results in mid-February.

During the reimplementation of the MCO (MCO 2.0) in mid-January, meanwhile, FocusP’s optical stores were only shut for a brief period because subsequently the government permitted optical stores to reopen.

Gan said despite being permitted to operate, FocusP’s sales were lower by 20% due to lacklustre foot traffic in retail areas.

“We like FocusP’s relatively MCO-resilient business model as we view optical sales as an essential rather than a discretionary purchase,” he added.

Gan said in terms of FocusP’s food and beverage (F&B) division, its existing central kitchen facility had been granted Hazard Analysis Critical Control Point (HACCP) certification, paving way to supply to a large café chain with baked goods.

The analyst said: “We understand the venture will amount to RM50,000 revenue per month for the time being, given FocusP will solely supply macarons to a client.

“We expect this figure to increase going forward as we reckon FocusP will start supplying new SKUs (stock-keeping units) in the future,” he added.

According to Gan, in order to supply to another large client (which has over 400 existing retail outlets), FocusP had guided that it expects ISO 22000 certification for the second central kitchen to be granted by 3QFY21.

Therefore, he estimates FocusP’s second central kitchen to have a utilisation rate of 30% based on increased orders from existing customers as well as new clients coming on board.

“We believe the second kitchen will be able to generate up to RM5 million per month from corporate sales at maximum capacity,” he added.

The second central kitchen is estimated to be operational by mid-February.

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