Brahim’s fundamentals still solid

by **Cals** Thu 12 Jun 2014, 02:54

Business & Markets 2014

Written by HongLeong Investment Bank Research

Wednesday, 11 June 2014 10:25

Brahim’s Holdings Bhd
(June 10, RM1.63)
Maintain buy at a target price of RM2.97: Despite the recent selldown on Brahim’s shares due to weak market sentiment and concerns about the impact from Malaysian Airline System Bhd (MAS) on earnings, we remain positive about the group’s long-term growth as fundamentals are still solid.
Brahim’s would be impacted at most by -22.5% assuming MAS cuts its capacity by 30%. However, we view this as unlikely given that travellers would opt for other airlines, which are likely Brahim’s existing customers. In the worst case scenario, a 22.5% drop in earnings would reduce our target price to RM2.19 which still implies a 36% upside to yesterday’s closing price of RM1.60.
Concern on sugar venture. Despite MSM’s announcement on its joint venture with Al Khaleej International Ltd to build a plant in Tanjung Pelepas, Johor, we gather that Brahim’s sugar venture in Sarawak is still intact. At this juncture, we opine that it is still in the early days to determine whether Brahim’s would be disadvantaged by the new venture.
However, the construction of the refinery plant in Demak Laut, Sarawak is still ongoing. Earthworks have just been completed. Our current valuations and target price have not included the contribution from the venture as it will only kick in in financial year 2016 (FY16).
We remain confident about Brahim’s existing operations and expect its full-year results to be in line with our forecasts of RM28.4 million in profit after tax and minority interest (+7.8% year-on-year), largely boosted by larger customer base, opening of klia2 and interest savings from loan refinancing.
Going forward, its venture in Mecca will start to contribute significantly in FY15 to FY16 with circa RM4 million and RM7 million and RM8 million respectively. Do note that the kitchen is expected to only complete and commence operations in FY16 and the contributions in FY15 are from the shipping of its currently ready-to-eat products to Mecca.
Maintain “buy” with unchanged target price of RM2.97 based on average of 16.9 times and 8.7 times price-earnings ratio and entreprise value/earnings before interest, tax, depreciation and amortisation respectively. Given that the share price has plunged by more than 30% in the past two months, we notice an imminent reversal signal as indicated by technical oscillators. Hence, we advise investors to buy on weakness. — HongLeong Investment Bank Research, June 10

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This article first appeared in The Edge Financial Daily, on June 11, 2014.[/size]