KUALA LUMPUR: Focus Point Holdings Bhd is expected to record compound annual growth rate (CAGR) of 16 per cent in its earnings for financial year 2023 (FY23) until FY26.
Mercury Securities said this will be driven by healthy retail sales growth alongside outlet expansion for both its optical and food and beverage (F&B) segments.
Mercury Securities also believes the current economic backdrop in Malaysia supportive, characterised by the civil servant pay hikes, partial withdrawals from the Employees Provident Fund, a possible rakyat-friendly 2025 Budget and potential hikes in the minimum wage.
"We expect rising margins for Focus Point in FY24- 26F, primarily driven by improving profitability at Komugi," it said in a note.
The firm initiated coverage on Focus Point with a "Buy" call and a target price of RM1.15 as it favours Focus Point for its leading position and steady growth in the eyewear business, coupled with potential earnings expansion from the turnaround in its F&B business.
Focus Point is the largest optical retail chain operator in Malaysia, boasting a total of 196 outlets.
Even after a strong rebound post Covid-19 pandemic, the sales for its optical segment have remained robust, supported by rising myopia cases among an ageing population.
"We expect Focus Point optical segment to achieve a three-year revenue CAGR of 10.9 per cent from FY23-26, driven by continued outlet expansion (five to eight net openings per annum) and steady sales growth of five to seven per cent per outlet.
"Given the fragmented nature of the optical industry, we believe there is potential for Focus Point to expand its market share inorganically (less than 20 per cent now) by acquiring smaller chain store operators," it said.
It added that Focus Point achieved a positive shift in earnings for its F&B segment (Komugi) this year, transitioning from an RM1 million operating loss in the first half of 2023 (1H23) to breaking even in 1H24.
The firm believes the positive momentum can be sustained, as the previous issue of excess labour has been fully resolved.
"We conservatively assume that Komugi's operating margins could improve to 8.0-12 per cent in FY25-26.
"There could be upsides to our forecasts if corporate sales by Komugi surpass expectations, leading to higher utilisation rate for its central kitchens (currently at around 70 per cent)," it added.