Highlights

Brahim’s entered into a MoU with Labuan Halal Hub Sdn Bhd (LHH) to produce and supply Halal meals to offshore oil platforms and vessels, and distributing Brahim’s ready-to-eat (RTE) meals and cooking sauces to East Malaysia and Brunei.

Brahim’s is collaborating with LHH to provide technical support in the management of Halal process and accreditation to new overseas market developed by LHH.

Comments

We are positive with the announcement as Brahim’s have always been on an expansion mode to further strengthen its status and branding as a Halal meal caterer.

In brief, LHH was established by Perbadanan Labuan to invest and expand in the Halal industry in line with the growing demand for Halal food and services in Asia.

Moreover, the strategic business alliance would allow Brahim’s to gain new market share in the Halal food catering for offshore vessels and platforms and generate valueadded ventures for Halal Hub operations in the Asia Pacific region. Currently, Brahim’s is only known for catering Halal in-flight meals.

Besides exposing Brahim’s on its F&B business segment, the group is also putting effort to further improve its logistics division (warehouse) by giving technical support and expertise in Halal Hub Warehouse. To recap, Brahim’s have managed to turnaround its logistics division with a slight profit.

Accounting-wise, we do not see the collaboration to significantly boost Brahim’s earnings for FY14. Furthermore, the MoU is effective for the period until 31 Dec 2014

Risks

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

Forecasts

Unchanged.

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 RM2.64 based on 16x FY15 P/E and 8.5x FY15 EV/EBITDA.

Source: Hong Leong Investment Bank Research - 20 Jan 2014