This article first appeared in The Edge Malaysia Weekly on January 29, 2024 - February 4, 2024

WITH the increased gadget usage, changing lifestyles and an ageing population, Focus Point Holdings Bhd and Optimax Holdings Bhd have drawn considerable market interest. After all, both companies, which are in the thick of expansion plans to tap the growing needs, are the only two outfits on Bursa Malaysia with niches in the optical business.

Market interest was apparent during the pandemic. Shares in Focus Point, which stood at the 20 sen level in January 2020, tripled to 63 sen in the subsequent 12 months and peaked at RM1.03 in February last year. It is now trading in the range of 72 sen to 76 sen.

Optimax, which debuted at 71 sen a share on the ACE Market in August 2020, rose to 80 sen in December 2022. It closed at 60 sen last Thursday.

Note that both companies’ offerings differ considerably. Focus Point is a retailer of eyewear with a secondary business in food and beverage (F&B) whereas Optimax is a medical ophthalmology services specialist.

“Both Focus Point and Optimax are well-managed businesses with strong niches in the optical segment. Both are at tipping points of their existence,” former investment banker Ian Yoong tells The Edge.

He points to Focus Point’s shares trading at “attractive valuations of 9 times financial year 2024 (FY2024) price-earnings ratio and 8 times FY2025 PER (based on Jan 18’s price of 73.5 sen)” as well as the company’s “healthy cash position” of RM41 million as at Sept 30, 2023.

“Focus Point’s return on equity (ROE) is expected to be 26% and 23% for FY2024 and FY2025 respectively, while the projected dividend yield is an attractive 4% for FY2024 and FY2025. This is equivalent to the prevailing 12-month fixed deposit interest rate. Investors can get in on the cake and eat it, too,” he says.

Bloomberg data shows that both analysts covering Focus Point have “buy” calls on the stock, with target prices of RM1.11 and RM1.03. Meanwhile, all three analysts covering Optimax have either “buy” or “add” calls on the stock, with target prices of 76 sen, 84 sen and 86 sen.

Focus Point’s net profit margin had grown from 6.64% in the financial year ending Dec 31, 2020 (FY2020) to 8.21% in FY2021 and 14.43% in FY2022, which the group regards as its strongest performance yet. Latest financial data shows that the net profit margin for the cumulative nine months ended Sept 30, 2023, was 10.5% compared with 14.11% in the same period in the year before. Gross profit margin for the periods were 64.8% and 65.7% respectively.

Its CEO Datuk Liaw Choon Liang tells The Edge: “Many funds are comparing our performance to FY2022 but it is not a fair comparison, as that was a benchmark year in which many businesses normalised after the pandemic. Having said that, our numbers in 4Q2023 look promising to complete the fully normalised and challenging year.”

Asked about the higher cumulative selling and administrative costs for the period compared to previous years, Liaw explains that they arose from the opening of seven new outlets in 2022 and six in 2023. “It usually takes a year or two for the outlets to build up [and break even],” he says.

To stay competitive, Focus Point includes value-added services entailing primary eyecare and artificial intelligence analyses in its optical screenings. The optical group has also launched the Sightsavers programme, where it collaborates with independent optical shops targetting second-tier cities and converts them into Focus Point outlets. It hopes to grow outside of shopping malls, where its outlets are predominantly located.

“The [eyewear] industry continues to be vibrant because Malaysia’s population is growing, and the ageing community needs reading glasses. Young children who have been exposed to plenty of online learning have developed severe myopia, and that is a global trend,” says Liaw.

Yoong notes that analysts’ expectations of 8% to 9% top line growth for the next two years appear tepid, underscoring the group’s diversification into the distribution of Komugi cakes and frozen products in 2012.

To Liaw, the F&B arm, which is currently contributing about 30% to the group’s revenue, is expected to reach 50% within the next three years and even overtake the optical business in five years.

Meanwhile, it is interesting to note that Optimax, which is a human resource- and capital-intensive business, grew its net profit margin from 11.05% in FY2020 to 15.2% in FY2022, which exceeds Focus Point’s figures in the same period. Its net profit margin for the nine months ended Sept 30, 2023, was 11.8%.

CEO Sandy Tan puts it down to Optimax having effective control over operating cost throughout the lockdowns, which made “a substantial contribution to the growth in net profit margin”.

She adds that about 6% of the revenue is derived from international patients seeking treatment at the group’s branches in Malaysia. Optimax owns and operates 13 ambulatory care centres (ACCs), six satellite clinics and a specialist hospital in the country.

In addition, some ACCs, satellite clinics and specialist hospitals being built will be operational this quarter.

Optimax will have a presence in Cambodia by 1H2024, and is in talks with parties to explore a possible expansion to Vietnam and the Philippines.

“Optimax undoubtedly has a wider moat than Focus Point. It is inherently more difficult to start up and operate specialist eye centres than to start up and operate a chain of optical shops. Having said that, it is worth noting that Optimax was founded by a former policeman turned successful businessman about 25 years ago. Focus Point, on the other hand, is significantly undervalued at current prices with single-digit earnings multiples,” reasons Yoong.

Where both companies’ business models are concerned, Rakuten Trade head of equity sales Vincent Lau favours the offerings of Focus Point’s bread and butter — eyewear — for its affordability and accessibility compared with the surgical procedures offered by Optimax.

“Optimax’s PER is about double that of Focus Point’s. Not everyone can afford or would agree to undergo the Lasik procedure,” remarks Lau. He also believes that the highly competitive nature of the optical surgery business may cap earnings upside.

Where pricing is concerned, Tan says Optimax has maintained the rates for the procedure over the years but, with the introduction of new technologies, prices may be varied as well.

“Cataract surgery is considered a necessity and falls under the purview of the Ministry of Health, where there is a standard cost for the procedure. Therefore, the final price depends on the type of lenses chosen by the patient,” she says.

Despite Optimax’s ambitious expansion plan undertaken in recent years, the group managed to grow its net profit from RM6.4 million in 2020 to RM13.1 million and RM16.4 million in the next two years. It also saw turnover increasing from RM58 million in FY2020 to RM88.9 million and RM108 million over the same period..

For 3QFY2023, Optimax posted a net profit of RM2.84 million, a 22.8% year-on-year decrease from RM3.68 million, amid an increase in operating costs to hire the additional medical and support staff for its new ambulatory care centres and satellite clinics. After embarking on the expansion plans, the size of its medical team has since grown 15% to 20%.

Revenue dipped slightly to RM28.5 million.

To Yoong, Optimax’s profit is below expectations because of the ambitious expansion programme, but he believes it will improve soon.

“Optimax’s forward PER at 28 times and 23 times for FY2024 and FY2025, respectively, can be justified by 20% to 25% earnings growth in FY2026. In addition, ROEs for FY2024 and FY2025 of 24% and 27%, respectively, are attractive,” he says.

While Yoong views the projected dividend yields of 3.6% and 4% for FY2024 and FY2025, respectively, as another “significant thumbs up”, the “black mark for Optimax is its small, negative net cash flow for FY2022 and FY2023”.

“Its net cash flow is projected to turn positive in FY2025. Note that there is a warrant, which will dilute earnings per share when converted,” he adds.

Focus Point has a policy of paying out dividends of at least 30% of its net profits, while Optimax has not established such a policy. Based on Optimax’s FYE2021 and FYE2022 results, total payout ratios were 83.4% and 88.2% respectively. 

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