BRAHIM’S HOLDINGS BHD

Target price: RM0.51

BRAHIM’S RM3.9mil core net loss for the first half of financial year 2017 (H1FY17) came in below Hong Leong Investment Bank (HLIB)’s expectation as the research house expected the group to turn profitable in FY17.

Brahim’s H1FY17 core net loss narrowed from a core net loss of RM10.8mil a year ago, while the core net loss of RM2mil in the second quarter of FY17 narrowed from a core net loss of RM5.8mil in the previous corresponding period due to better performance at the catering division.

Earnings before interest and taxes improved to RM1.5mil from a loss of RM2.3mil in Q2FY16 on the back of higher passenger traffic, as evidenced by 13.8% year-on-year increase in Malaysia Airport Holdings Bhd (MAHB)’s reported passenger volume in Q2FY17, as well as higher meal prices with better profitability from a new contract with MAHB, which began in Q3FY16.

“MAHB’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,” said HLIB.

The research house lowered its profit after tax and minority interest (Patami) forecasts for FY17, FY18, and FY19, from RM5.7mil, RM8.4mil, RM8.8mil, to core net losses of RM5.3mil, RM3.6mil, and RM3.2mil, respectively.

This is because HLIB does not expect Brahim’s to turn profitable in the absence of a significant new catering agreement.

As the research house expected Brahim’s to be loss making going forward, HLIB has changed its valuation methodology from price-earnings ratio to price-to-book ratio.

HLIB also lowered its target price slightly from 56 sen to 51 sen, pegged to a current price-to-book ratio of 0.5 times, to account for a potential writedown of goodwill that make up a significant portion of the group’s assets.