Results

• Below Expectation: Brahim’s 1H17 core net loss of RM3.9m came in below expectation as we had expected the group to turn profitable in FY17 (with projected core net profit of RM5.7m).

Deviations

• Unsuccessful cost rationalization.

Highlights

• Yoy: Core net loss of RM2.0m in 2Q17 narrowed from a core net loss of RM5.8m in 2Q16 due to better performance at the catering division (which EBIT has improved to RM1.5m from -RM2.3m in 2Q16) on the back of: 1) Higher passenger traffic, evidenced by 13.8% yoy increase in Malaysia Airport Holdings Bhd’s (MAHB) reported passenger volume in 2Q17; and 2) Higher meal prices (and hence better profitability) from a new contract with MAB, which began in 3Q16.

• Qoq: 2Q17 core net loss widened marginally to RM2.0m (from RM1.9m in 1Q17) mainly due to seasonally lower contribution from the catering segment.

• Ytd: 1H17 core net loss narrowed to RM3.9m (from RM10.8m a year ago) as the group’s catering division benefited from higher passenger traffic (MAHB reported a 12.3% increase in passenger volume yoy) as well as higher ASP of meals catered to MAB that began in 3Q16.

• Prospects: MAB’s growth in passenger numbers should bode well for Brahim’s going forward. We also expect the group to continue to diversify its revenue sources by securing further catering partnerships. However, should the group fail to secure a significant catering agreement, we expect it to continue to make losses going forward.

Risks

• Inability to capture new catering agreements.

• Lower than expected tourist arrivals

Forecasts

• We lower our FY17/18/19 PATAMI forecasts from RM5.7m/ RM8.4m/ RM8.8m to core net losses of -RM5.3m/ -RM3.6m/ - RM3.2m as we do not expect the group to turn profitable in the absence of securing a significant new catering agreement.

Rating

• (HOLD ↔ , TP: RM0.51 )

• MAB’s gradual turnaround bode well for group going forward. Nevertheless, we do not expect Brahim’s to turn profitable in the absence of securing a significant catering agreement in the future.

Valuation

• As we expect Brahim’s to be loss making going forward, we change our valuation methodology from PE(x) to PB(x). We lower our TP slightly from 56 sen to 51 sen pegged to 0.5x current PB to account for a potential write down of goodwill that make up a significant portion of the group’s assets. Maintain HOLD call.

Source: Hong Leong Investment Bank Research - 5 Sept 2017