Results

Above Expectations – Brahim’s reported 9MFY13 core PATAMI of RM8.1m came in significantly above expectations, accounting for 87.3% and 89.2% of ours and consensus full year estimates.

Deviations

• Higher-than-expected passenger carried by MAS.
• Better-than-expected traffic in KLIA & LCCT.
• Higher-than-expected margins.

Dividends

None. However, we are forecasting the group to be declaring its maiden dividend in 4QFY13 of 0.5 sen.

Highlights

Revenue growth of 119% in 9MFY13 was largely attributable to its in-flight catering revenue. To note, MAS experienced increase in passenger movements of 28.8% in 9MFY13. This is following MAS’ focus on route maximization of its current destinations. Revenue from other foreign carriers (FOCA) remains stable.

9MFY13’s bottomline grew further with the help of margins expansion by 5.3ppts on the back of better economies of scale as well as better cost control and efficiency.

Logistic division continued to be profitable in 3QFY13 and we remain positive on the division, benefiting the group over the longer-term.

As for its Café Barbera business, we believe that the division would continue to bleed, albeit marginally. Thus far, Brahim’s have close down its outlet in Sunway Pyramid and also intend to close down its Setia Walk outlet. As such, we estimate that Café Barbera business would incur a smaller loss in FY13 (less than RM500k).

Airport restaurants, Dewina Hosts (reported under shares of results of JCE) continued to perform well and we expect the trend to continue on the back of increasing traffic flow in KLIA and LCCT/KLIA2.

The construction of its sugar refinery plant in Sarawak is progressing and is expected to commence operations in mid- FY15, as expected.

Risks

1) Pandemic outbreaks; 2) Termination of concession agreements; 3) Relatively elastic demand; and 4) Appreciation of US$ currency.

Forecasts

We upgraded our numbers on passenger carried by MAS, passenger movements in KLIA, LCCT and KLIA2. Margins were also expanded by 1% from efficiencies or economies of scale and tax rate was lowered to 33% from 37%, offset by the dilution post-private placement. Hence, FY13-15 EPS is upgraded by 4.3%-17.1%.

Rating

BUY

Positives – 1) Niche industry; 2) Sustainable earnings from long-term concession agreements; 3) Benefiting from rising air travel but unlike airlines, not impacted by yield compression, high jet fuel price and US$ costs; and 4) Additional boost from new sugar venture.

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

Post-earnings revision, we upgrade our recommendation and TP to BUY and RM2.13 (from RM1.56) respectively as we roll forward our valuations based on industry average of 14.9x FY15’s EPS and 7.0x FY15’s EV/EBITDA.

Source: Hong Leong Investment Bank Research - 29 Nov 2013