Brahim’s Holdings Bhd
(Feb 20, 80 sen)
Maintain buy with a target price (TP) of 98 sen: According to The Edge Malaysia weekly, Brahim’s Airline Catering Holdings (BACH, a 51%-subsidiary of Brahim’s Holdings Bhd) is close to securing a catering contract with Petroliam Nasional Bhd’s Refinery and Petrochemical Integrated Development (Rapid) project in Pengerang, Johor.

The deal is purportedly for three meals a day for 10,000 pax at approximately RM12 per meal. Based on our estimates, the deal (if it materialises) would boost Brahim’s revenue and profit before tax by 10% and 19% respectively, assuming a PBT margin of 15%. We also note that Brahim’s will pay minimal tax as it has approximately RM13 million in tax credits which should offset most of its tax expenses.

Additionally, Brahim’s is also seeking a waiver for the bulk of rent for its kitchen for 2017 to 2018, estimated to cost RM20 million a year. Should Brahim’s have the rent waived by the finance ministry, BACH will save around RM14 million a year (after adjusting for minority interests).

Recall that as part of the divestment of a 49% stake in BACH to SATS, the deal included incentive payments for Brahim’s, in the event that BACH meets certain profit after tax and minority interests (Patmi) thresholds.

Currently, BACH is unlikely to reach the minimum required Patmi for 2016 (RM23.7 million) as BACH has recorded only RM1.7 million profit after tax (PAT) in 9MFY16.

These two agreements would add RM23.2 million to BACH’s bottom line in financial year 2017 (FY17). Excluding the Rapid catering contract, we forecast BACH to record approximately RM10 million PAT in FY17 (BACH recorded RM2.24 million in the third quarter of FY2016 after adjusting for MAB’s 30% share). Including the Rapid contract, our FY17 Patmi forecast for BACH would rise to RM33.3 million, which would entitle Brahim’s to an incentive payment of RM13.6 million at the end of FY17.

Assuming Brahim’s secures both deals, we estimate the group’s FY17 Patmi to be boosted by 117% to RM21.5 million or 9.1 sen per share.

We upgrade our call to trading “buy” from “hold” with higher TP of 98 sen based on unchanged 16 times FY18 performance evaluation (PE). Our PE multiple of 16 times represents a discount of 30% to SATS PE multiple of 22.5 times — Hong Leong Investment Bank Research, Feb 20