• Brighter days ahead. We are of the opinion that the worst is over for Brahim’s after three consecutive years of losses and cloudy earnings prospects. The signing of the ‘New Catering Agreement’ (NCA) and entrance of strategic partner SATS, positive meals volume outlook amid promising air travel demand coupled with the gradual improvement in non-aviation catering segment, have brightened the earnings outlook for Brahim’s, with FY17-19 core earnings expected to grow by 23% CAGR to RM15.2m.

• HLIB maintains a Trading Buy rating on Brahims with a RM0.98 target price (or 28% upside), deriving from a 16x FY18 EPS of 6.1sen, representing a 27% discount to SATS (owns a 49% stake in Brahims Catering) FY18 PE of 22x. Near term re-rating catalysts are securing the Rapid catering contract and kitchen facility rental waiver (not imputed in HLIB FY17 forecasts), which management guided to materialize in 2H17. Assuming Brahim’s secures both deals, we estimate FY17 PATAMI to be boosted by 117% to RM21.5m or 9.1 sen/share (from 4.2sen).

• Poised for a triangle breakout. After tumbling 40% from 52-week high of RM1.07 (24 May 16) to a low of RM0.645 (4 Jan 17), Brahims’ share prices staged a relief rally as high as RM0.875 (14 Feb) before retracing to RM0.765 yesterday. Technically, its short and long-term outlook remains encouraging as uptrend support trendlines remain intact and we believe the stock is ripe for a near term downtrend resistance breakout, as indicators are on the mend.

Source: Hong Leong Investment Bank Research - 9 Mar 2017