Highlights

• Brahim’s announced that the group have entered into a MoU with Servair Investissements Aeroportuaires (SIA), collaborating and improving commercial and industrial cooperation in airline catering business.

• SIA is a subsidiary of Serveair which in turn is a subsidiary of Airfrance. Serveair is the leading catering company in France and ranked third worldwide, engaging in airline catering, airport assistance services and air transport consulting.

Comments

• We are not surprised by the announcement as we have earlier indicated the group’s interest in expanding its catering business internationally.

• We understand that the MoU would allow Brahim’s to cooperate with Servair in some of the latter’s kitchen (if not all) and vice versa. We gather that Servair currently operates in 40 airport kitchens and has about 100 customers.

• We view this positively as it would enhance and strengthen Brahim’s image as a world-known in-flight catering company, as well as expanding its foothold by tapping on Servair’s network. Servair on the other hand would leverage on Brahim’s halal certification.

• As no investment value were disclosed, we believe any investment to be incurred would be minimal given that both parties already have existing kitchens. Hence, we do not see Brahim’s gearing ratio to increase significantly.

• Separately, the group could be able to obtain an additional customer under its catering business where KLM may return to Brahim’s for in-flight meals. Currently, KLM is catered by KLAS.

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; (2) Sustainable earnings fromlong-term concession agreements; and (3) Developing into an integrated Halal food producer

Negatives

• (1) Earnings highly dependable on economicconditions/pandemics; and (2) Additional borrowings for any asset injections could increase net gearing significantly.

Valuation

Target price remained unchanged for now at RM1.43 based on FY15’s 13.5x P/E and 7x EV/EBITDA, 20% discount to peers. We are also keeping our HOLD recommendation unchanged.

Source: Hong Leong Investment Bank Research - 22 Jan 2015