Highlights

• Brahim’s announced that the group has entered into a MoU with Nippon Express (Malaysia) Sdn Bhd (NEM) which in turn will allow it to tap into the international network of Nippon Express Group.

• NEM is part of the Nippon Express Group, an international freight forwarding and global logistics service provider, including South Asia and Oceania region. NEM have taken steps to develop dedicated transportation services that comply with the requirement of the MS2400-1: 2010 (Halal Logistics).

Comments

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

• Under the MOU, they will collaborate and conduct mutual cooperation with each other in ensuring the integrity and reliability of its supply chain benchmarking for world class Halal Logistics services.

• Brahim’s would benefit from the international network of the Nippon Express Group in various areas such as cost efficiencies, reliability and integrity of its supply chain and other core competencies associated with a highly efficient logistics systems.

• We view this positively as it would enhance and strengthen Brahim’s image as a world-known halal catering company, as well as expanding its foothold by tapping on Nippon Express’ network. NEM 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. 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

BUY

Positives

• (1) Niche industry; (2) Sustainable earnings from long-term concession agreements; and (3) Developing into an integrated Halal food producer.

Negatives

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

Valuation

• Reiterate BUY with unchanged fair value of RM1.12 based on FY15’s 15.0x P/E and 8.5x EV/EBITDA, an unchanged 20% discount to peers.

Source: Hong Leong Investment Bank Research - 16 Jun 2015