Highlights

Brahim’s Holdings Bhd (BHB) have announced that its 60%- owned Admuda Sdn Bhd, has received all the necessary approvals from the Ministry of Resource Planning and Environment, and the Sarawak Government Land and Survey Department (Kuching Division) to commence construction works on its sugar refinery production facility.

The facility will have a revised rate production capacity of 180,000 metric tonnes per annum (mt pa.) of refined sugar. The plant is estimated to complete in FY15.

Comments

The announcement is positive to the group as there is now more clarity on the commencement of construction works on the proposed refinery plant in Demak Laut Industrial Park, Kuching, Sarawak.

The revised capacity of 180,000 mt pa. is at the higher end of the group’s initial capacity of between 100,000-180,000 mt pa., as well as our assumption of 150,000 mt pa..

Despite that, the timeline for the plant to complete is within our estimates of mid-2015. The plant would take approximately 12-18 months to complete.

To recap on BHB’s sugar venture, the refined sugar produced by the plant is positioned to cater for the demand in East Malaysia (average consumption of 300,000 mt pa.) and will be priced the same as the refined sugar sold in Peninsular Malaysia.

With such huge consumption demand in East Malaysia, BHB will be increasing the refinery plant’s capacity gradually by 50,000 mt pa. until it reaches 400,000 mt pa.

Risks

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

Forecasts

Unchanged.

Rating

HOLD

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

Given that BHB’s share price have soared 49% since our initiation in July, we now downgrade the stock to HOLD with unchanged TP of RM 1.56 based on industry average of 14.9x FY14’s EPS and 7.0x FY14’s EV/EBITDA.

As the sugar venture will only start contributing in FY15, we have not factored this into our valuation which implies that it is not reflected in share price at all and will be added bonus when commence operations in FY15.

Source: Hong Leong Investment Bank Research - 16 Oct 2013