FOCUSP: Retailer’s Earnings Fall Short of Expectations, Long-Term Outlook Remains Positive

Despite robust strategic initiatives, the company’s 9MFY25 financial results came in below analysts’ expectations, primarily due to lower-than-anticipated revenue growth and elevated operating expenses. However, the investment bank reiterates a “BUY” recommendation, pointing to undemanding valuations and a positive long-term growth trajectory.

Performance Review

For the first nine months of FY25, net profit registered at 60-67% of full-year consensus estimates, with revenue coming in at 67% of full-year estimates. Year-on-year revenue growth moderated to 5%, reaching RM220.2 million, a decrease from the 12% growth seen in 9MFY24. The optical segment demonstrated resilience with 7% growth to RM182.7 million, while the Food & Beverage (F&B) segment grew by a more modest 4%.

Profitability metrics saw gross profit margins at 66% and EBITDA at 32%. However, higher operating expenses, particularly stemming from losses in the F&B segment, led to a 1 percentage point decline in PAT margins, settling at 10%. The effective tax rate also rose to 28% from 25% in 9MFY24. Quarter-on-quarter, topline rebounded by 3%, driven by a recovery in the optical segment. Despite this, gross profit fell 3 percentage points to 65%, and net profit declined by 25%, with margins at 8% compared to 12% in the previous quarter.

Future Outlook and Strategic Initiatives

Despite the near-term challenges, the investment bank remains positive on the company’s growth prospects. The optical segment, having achieved its highest year-to-date revenue, is expected to continue its strategic efforts to sustain growth and enhance its market leadership. This includes expanding its geographical reach through new outlet openings in strategic locations, investing in advanced primary eyecare equipment, and conducting vision care awareness roadshows.

Efforts are also underway to enhance operational efficiency and cost-effectiveness, expand product offerings for both retail and corporate customers, and acquire more corporate clients. Specifically, the F&B segment is undergoing initiatives aimed at turning around the business and returning to profitability. Regulatory changes, such as the ban on online sales of optical devices by non-licensed sellers, are expected to provide a tailwind for the company’s strong licensed presence.

Valuation and Recommendation

Following the results, the investment bank has revised down its FY25E/FY26E earnings estimates by 6% and 8% respectively. Concurrently, the target price has been adjusted downwards by 21% from RM0.79 to RM0.62, based on a lower ascribed Price-to-Earnings (PER) multiple of 10x (previously 13x), aligning with the FBM Small Cap index. Valuations have been rolled over to FY26E.

Despite the earnings revision and target price adjustment, the investment bank maintains its BUY recommendation. This is supported by what analysts consider to be undemanding valuations and an attractive dividend yield of 6%, based on the report’s last traded price of RM0.51.