Brahim to prosper alongside MAB

KUCHING: Airline caterer Brahim Holdings Bhd ( Brahim) is set to prosper alongside Malaysia Airlines Bhd (MAB) as the national airline’s performance continues to strengthen with a reported load factor of 90 per cent in December last year.

This exceptional load factor has brought MAB’s fourth quarter 2016 ( 4Q16) load factor figures to a healthy 82 per cent and coupled with MAB’s aggressive expansion plans to launch 11 new routes to China in the coming year, the research arm of HongLeong Invetsment Bank Bhd ( HLIB Research) expects Brahim’s catering business to MAB to witness a healthy growth this year.

Currently, Brahim’s management has guided that the group caters upwards of 55,000 meals a day with most of the orders derived from MAB demand and its recent contract award from Malindo Air which is estimated to be worth RM15 million per year in revenue for the catering group.

While MAB’s gradual turnaround is good news for Brahim, its management is attempting to diversify its customer base by tendering for catering contracts from outside of airline as part of their plan to diversify away from airlines as their main source of revenue.

Additionally, Brahim’s management has also shared that its tie up with Sats Ltd (Sats), the chief ground- handling and in- flight caterer of Singapore Changi International Airport have yielded several significant synergies to the group.

Most notably, Sats’ has assisted Brahim in successful negotiations of higher cost structures with foreign airlines, joint procurement efforts, and the passing of the recent gluten free quality test imposed by British Airways on Brahim’s operations.

“The emergence of Sats as a strategic partner has brightened prospects in providing an operational blueprint for the group. However, there are still short term operational challenges that the group will face as its core customer continues to evolve,” shared the research arm.

As such, the research arm will be maintain its ‘ Hold’ call on Brahim with an unchanged target price of RM0.67 which is based on a 16 fold FY17 price to earnings ( PE) ratio with a PE multiple of 16 fold that represents a discount of 30 per cent to Sat’s PE multiple of 22.5 fold.

Additional MAB performance turnarounds or beginning of a major catering agreement in the future would be potential catalysts for a rerating for the group.