Highlights

Proposed private placement of up to 21.481m new ordinary shares, representing 10% of paid-up share capital of Brahim’s to independent third party investor at an issued price to be determined later. The exercise is expected to be completed in 4Q13.

At an indicative price of RM1.20 (3% discount to 5-day VWAP of RM1.22), the proposed private placement is expected to raise approximately RM25.78m.

The two largest portions of the proceeds will be used for repayment of loan advances and working capital requirements (31% each). The details of utilisation of the proceeds are illustrated in Figure 1.

In the event that the board is unable to identify sufficient placees, the proposal may be implemented in tranches, within 6 months form the date of approval of Bursa Securities or any extended period approved.

Comments

Net gearing: Repayment of bank borrowing of RM6.2m (11.3% of total borrowing of RM54.5m as at Dec 2012) would reduce Brahim’s net gearing ratio by 20% to 0.20x from 0.25x.

EPS dilution: Based on our calculation, the proposal would dilute Brahim’s 2014 EPS by approximately 8%, assuming 1) net interest cost savings of RM0.4m or 3%; and 2) the private placement is set at indicative price of RM1.20/share.

We believe that the 8% dilution would be the maximum dilution as we did not factor in the potential reduction in effective tax rate which are currently above 25%. Lower rate would eventually narrow the dilution gap.

All in all, we are neutral on the proposal given that the positive vibe in reduction in net gearing ratio would be partially offset by the dilution in Brahim’s EPS.

Risks

• Pandemic outbreaks.
• Slowdown in passenger movements.
• Termination of concession agreements.
• Relatively elastic demand.
• Appreciation of US$ and/or depreciation of RM.

Forecasts

Unchanged, pending for completion of the corporate proposal.

Rating

BUY

Positives – (1) Niche industry; and (2) Sustainable earnings from long-term concession agreements.

Negatives – (1) Earnings highly dependable on economic conditions/pandemics; (2) Delay in the opening of KLIA2 and sugar refinery plant in Sarawak; and (3) Additional borrowings for any asset injections could increase net gearing significantly.

Valuation

Maintain BUY with unchanged TP of RM1.56 based on industry average of 14.9x FY14’s EPS and 7.0x FY14’s EV/EBITDA.

Source: Hong Leong Investment Bank Research - 10 Sep 2013