Results

Above Expectations – Brahim’s reported FY13 core PATAMI of RM26.6m came in significantly above expectations, accounting for 133.1% and 134.5% of ours and consensus full year estimates.

Deviations

Lower-than-expected operating expenses.

Dividends

Declared an interim single-tire dividend of 0.25 sen/share, representing dividend payout and yield of 2% and 0.1% respectively.

Highlights

Revenue growth of 118.4% in FY13 was largely attributable to its in-flight catering revenue. To note, MAS experienced increase in passenger movements of 27.7% in FY13. Bottomline grew further with the help of improved costs efficiencies.

Airport restaurants continued to perform well and we expect the trend to continue on the back of increasing traffic flow in conjunction of Visit Malaysia Year 2014 (VMY14).

Logistic division continued to be profitable in FY13 with total operating profit of RM673k and we remain positive on the division, benefiting the group over the longer-term.

Despite not having any plans in opening anymore Café Barbera outlets locally, we believe the group would be making initiatives to turnaround the bleeding business segment, returning it to the black.

Brahim’s is planning to open 200 mobile carts in LRT stations. The proposal will likely to be a JV between Brahim’s and another party (unknown for now). However, there were no detailed information were provided, hence we are not imputing any potential contribution from this.

As to its collaboration with All Nippon Airways (ANA), it would take approx. 3-4 months for Brahim’s to “halal-lise” ANA’s kitchen. Impact to earnings from the collaboration would likely to be visible in 4QFY14.

From the meeting with management, we understand that the construction period for the sugar refinery plant is still unchanged at 12-18 months.

Risks

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

Forecasts

We upgraded our FY14-16 EPS by 16-25% from adjustments in: (1) higher EBITDA margin from lower opex; (2) lower finance costs to be incurred; and (3) lower depreciation and amortization.

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 TP to RM2.90 (from RM2.64) based on industry average of 16x FY15’s EPS and 8.5x FY15’s EV/EBITDA.

Source: Hong Leong Investment Bank Research - 3 Mar 2014