This article first appeared in The Edge Financial Daily on February 18, 2020

Focus Point Holdings Bhd
(Feb 17, 69 sen)
Maintain buy with a higher target price (TP) of 84 sen: Having recently met Focus Point Holdings Bhd, we left feeling positive about its prospects. Focus Point, currently pursuing the food safety certification Hazard Analysis and Critical Control Point (HACCP), targets to be certified by June 20, allowing the group to secure more corporate clients.

On the ISO 22000 certification, we understand it takes a minimum of six months to attain it. We expect the ISO and HACCP certifications to allow the group to solicit clients in highly regulated industries such as aviation or clients in Singapore, which Focus Point currently does not have. We feel positive about these certifications, as we understand there had been enquiries from clients interested in securing products from Focus Point’s central kitchen.

At the current order volume, Focus Point’s central processing kitchen is operating at a 70% capacity utilisation. With an expected increase in orders just from existing clients due to an already agreed-on increased order size and their expansion of outlets, Focus Point’s central processing kitchen will reach full capacity by year end.

If Focus Point secures new contracts to supply pastries to external clients, it will look into setting up another central kitchen. This should take less than RM3 million, funded by internally generated funds.

We expect strong earnings for Focus Point for the fourth quarter of financial year 2019 (4QFY19) due to rebates in the optical division from major suppliers linked to Focus Point achieving certain sales targets during the year. Take note its 4QFY18 earnings accounted for 62.7% of the group’s earnings for FY18. For the nine months of FY19, Focus Point’s core profit after tax was RM5.2 million — 65% of our FY19 estimate.

After factoring in stronger orders than previously expected from Focus Point’s central kitchen, our FY20 and FY21 earnings forecasts are raised 3% and 5.5% to account for better contribution from the food and beverage (F&B) corporate sales division.

Our “buy” call is maintained, with a TP of 84 sen. After considering a significantly stronger growth in F&B corporate sales, our price-earnings (PE) multiple is raised from 15 times to 17 times. A valuation multiple of 17 times is in line with Focus Point’s listed peers’. After accounting for an earnings adjustment and a higher PE, our TP is increased to 84 sen, pegged at 17 times mid-FY21 earnings per share from 70 sen previously. — Hong Leong Investment Bank Research, Feb 17