Highlights

• Brahim’s entered into Cafeteria Operation Agreements (COAs) with Universiti Kebangsaan Malaysia (UKM) for the purpose of leasing, renovation and upgrading of various food cafeteria outlets in UKM.

• As part of the deal, Brahim’s will operate, supply and serve meals, beverages and refreshments at the designated cafeterias, the befitting the standard of a three star premium outlet and/or sublet portions of the designated cafeterias.

• Brahim’s shall pay to UKM a share of profits, based on the calculated quarterly profit of the businesses in the Designated Cafeterias. The terms and conditions are yet to be confirmed.

Comments

• While we are encouraged by this announcement (which displays Brahim’s continuous efforts in executing its plan to diversify away from airline catering business as its main source of earnings), earnings contribution from the latest agreement will likely be minimal.

Risks

• MAB taking longer than expected to turnaround.

• Inability to secure further catering contracts.

Forecasts

• Maintained. We do not expect the latest agreement to have significant impact effect on Brahim’s earnings.

Rating

(TRADING BUY ↔ , TP: RM0.98 ↔ )

• Maintain our TRADING BUY call. We believe securing Rapid catering contract and kitchen facility rental waiver (which have yet to be reflected in our earnings forecasts) will trigger a re-rating catalyst for Brahim’s. Once materializes, we believe these two contracts will potentially boost Brahim’s FY17-18 earnings by 117% to RM21.5m or 9.1 sen/share, based on our assumptions.

Valuation

• We maintain our Trading BUY recommendation on Brahim’s, with unchanged TP of RM0.98 based on unchanged 16x FY18 EPS of 6.1 sen, a 30% discount to SATS’ current P/E multiple of 22.5x, as SATS has a larger market cap and more diversified revenue streams.

Source: Hong Leong Investment Bank Research - 27 Mar 2017