Comments

• 4Q17 Earnings Preview: In spite of higher reported passenger traffic figures from MAHB (4.2% yoy increase in passenger traffic in December 2017), we foresee another quarter of losses from Brahim’s in 4Q17 with absence of significant catalysts sparking profitability. Note that the group has recorded losses since 4Q14.
• Brahim’s only effectively owns 35.7% of the catering arm which is the group’s main earnings contributor. (34.3% is owned by SATS Ltd and 30% is owned by MAB)
• Since the twin MH disasters in 2014 and the downward revision of the group’s catering contract with MAB, Brahim’s have been looking to secure sizable non-airline catering contracts. To date, Brahim’s has been unable to secure a sizeable catering contract to fill the hole from the loss of earnings from the less lucrative MAB catering agreement. Despite losses narrowing, the group has remained unprofitable since 2014. We expect this to prevail going forward.
• On average, Brahim’s kitchen facility churns out between 40,000 to 50,000 in-flight meals a day. However, during peak tourism months, Brahim’s kitchen facility produces over 55,000 meals a day against a capacity of 60,000 meals/day, leaving little capacity for further catering contracts.
• Prospects: MAB’s growth in passenger numbers should bode well for Brahim’s going forward. However, should the group fail to secure a sizeable catering agreement, we expect it to continue to make losses going forward.

Risks

• Inability to capture new catering agreements.
• Lower than expected tourist arrivals.
• Slower than expected turnaround of MAB.

Forecasts

• Unchanged.

Rating

CEASE COVERAGE

• MAB’s gradual turnaround bodes 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. Brahim’s have been loss making since 2014 and have been trying to secure further catering contracts to return the group to profitability without success. With access to management hard to come by and prospects for the group going forward cloudy, we cease coverage.

Valuation

• Our previous TP of 51 sen was based on 0.5x P/B to account for a potential write down of goodwill (which makes up a significant portion of the group’s assets). As Brahim’s has been unprofitable since 2014 with unclear prospects abound, we cease coverage on the counter.

Source: Hong Leong Investment Bank Research - 19 Feb 2018