Results

• Below Expectations: Brahim’s reported FY15 core loss of RM15.7m came in below expectations our core profit estimates of RM1.7m

Deviations

• Prolonged discounting given to MAS under the NCA.

Highlights

• Yoy: Revenue declined by 19% due to lower average selling price/meal served to MAS under the NCA, in line with the latter’s efforts to reduce unit cost of food services. The ongoing consolidation of MAS’s flight routes has also impacted meal volumes in FY15.

• YTD: Topline dropped by 20.3% yoy, contributed by mixed performance across its business segments: catering (- 20.9%), logistics (+3.15%), insurance (-77.8%), and restaurant (-24.5%). Profits declined further on the back challenging domestic sentiments and operating environment.

• Disposal of 49% stake in Brahim Airline Catering Holdings Sdn Bhd to SATS was completed on the 5th of February 2016.

• FY16 prospects for the catering segment remain challenging due to MAB’s ongoing consolidation. Revenues from MAB are expected to drop on the back of the ongoing consolidation of flight routes. However, it is expected to be mitigated by the increase in foreign carriers and non-airline business. MAB’s code sharing program with Emirates will also increase contributions from FOCA airlines.

Risks

• Key risks in the near term include the weak RM curtailing outbound tourists and MAS’s ongoing restructuring plan. In the medium to long term; risks include failure to effectively diversify away from aviation-based catering and the purported synergies from the divestment of BAC to SATS fails to fruit.

Forecasts

• We updated out forecast to reflect the divestment of BACH. We expect operational challenges have reached their apex. Furthermore with the NCA signed and sealed we can expect stability in earning from MAB despite the potential backdrop in meal volumes. As such we maintain our positive earnings forecast for 2016.

Rating

We believe that the current stock price has reflected the near-term operational challenges and hence maintain our HOLD call. Whilst the emergence of SATS as a strategic partner has brightened prospects in the long term, near-term earnings are still cloudy amidst MAS’s restructuring efforts. Furthermore, there is a lagged effect in cost savings and efficiency measures on earnings. Growth in the non-aviation catering segment will take time to fruit.

Valuation

Maintain TP of RM1.00 pegged to 1.0x P/B and our HOLD call.

Source: Hong Leong Investment Bank Research - 29 Feb 2016