Lower profit will not halt Focus Point expansion

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THE slowdown in consumer sentiment has taken a toll on Focus Point Holdings Bhd, judging by the rather sharp decline in its net profit for the financial year ended Dec 31, 2014 (FY2014). Nonetheless, the optical firm will forge ahead with its expansion plans.

Focus Point (fundamental: 0.9; valuation: 1.8) will not stop investing in its optical and food and beverage (F&B) businesses in spite of the expected slowdown as a result of the implementation of the Goods and Services Tax (GST) next month, its president and CEO Datuk Liaw Choon Liang tells The Edge.

“We do have to be selective in terms of the location of our new stores but we cannot stop expanding simply because of the GST,” says Liaw, who is also president of the Malaysia Retail Chain Association.

According to him, the company will add 10 to 12 optical stores this year and relocate older ones to popular locations. Focus Point, the only listed optical firm on Bursa Malaysia, is currently the leading player with a market share of 15% to 20%.

In its fourth quarter ended Dec 31, 2014 (4Q2014), Focus Point suffered an 80% fall in net profit to RM361,000 from RM1.8 million a year before. Its revenue dropped 7.3% to RM37.1 million from RM400 million previously.

For FY2014, the company posted a net profit of RM1.16 million, or 0.71 sen per share, barely a quarter of the RM4.77 million or 2.89 sen per share achieved the year before. But revenue came in higher at RM153.49 million against RM147.4 million previously.

Focus Point attributed the decline to lower operating profit attained by the optical segment and higher operating losses incurred by its F&B segment. The weak ringgit also weighed down earnings as it imports all of its optical products.

Its share price closed at 28.5 sen last Thursday, giving it a market capitalisation of RM47.03 million.

“In the last few months, consumers were more cautious in their spending, especially in the third and fourth quarters,” Liaw explains. However, he says that the Focus Point is back on track due to the increased demand during the festive seasons from December to February.

“The major challenge will be April, when the GST kicks in. While we expect some slowdown [in consumer sentiment] in the first three to six months, we believe it will not impact us much,” Liaw says.

While he foresees the ensuing months to be challenging due to the GST, he is confident that Focus Point will continue to grow over time as he believes the GST will only have a temporary effect on consumer spending.

To counter the negative impact from the GST as well as strengthen its foothold in the optical business, Focus Point has adopted a brand diversification strategy that enables it to tap cost- and fashion-conscious consumers, especially the Gen Ys.

“We will have a new brand concept store, and will open our first store in Mid Valley [Megamall] within two months. It will have an open concept where the consumer will be able to feel the products. And we will have an affordable price range, allowing them to obtain a pair of glasses for less than RM250,” says Liaw, adding that Focus Point has been thinking of ways to tap the fashion trends for the past few years.

The new optical store will not feature international brands and is not under the Focus Point brand but will offer fashionable designs of reasonable quality from China and South Korea, says Liaw.

“We will gauge demand and look at [opening] a few stores with this new concept this year, featuring trendy, fashionable and wild optical wear targeting consumers aged 30 and below.

“We believe there are consumers looking for such products,” he says, adding that it is the right time to enter the low-cost segment of the market, as the economy is not doing well.

While Focus Point is chiefly known for its optical business — it is also the franchisor of the Focus Point optical stores — the company is also expanding its F&B business, which it diversified into at end-2012.

It created and designed the Komugi bakeries, which has a Japanese bakery concept, three years ago. There are now 10 Komugi stores and Focus Point plans to set up more of them locally and overseas.

“Komugi’s sales have been improving … [Nevertheless] we are cautious in the expansion of our stores as we use high-quality ingredients and cater for mid to high-end consumers,” he says.

Since diversifying into the F&B business, revenue contribution from this segment has accounted for almost 14% of its revenue as at Dec 31.

Due to strong interest from potential franchisees in several Asean countries, Focus Point has also begun to franchise out the Komugi brand, charging franchise fees of US$500,000 and 6% monthly royalty fees, says Liaw. “We have successfully opened a new overseas franchise in Manila this week [mid-February] and another two stores will be opened next month.

“Besides the Philippines, we will be entering into agreements with parties in Bangladesh and are in discussions with parties from Indonesia and Singapore,” he says, adding that it is also currently in negotiations to franchise out the Komugi brand in Kuching, Penang and areas outside of the Klang Valley.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on March 2 - 8, 2015.