Noble Group

OCBC on 14 Aug 2012

Noble Group (Noble) reported 1H12 revenue of US$47,069.0m, meeting 54.4% of our original FY12 forecast; core earnings came in around US$230.3m, or 40% of our full-year forecast. On its financial position, Noble notes that it currently has about US$6.2b worth of liquidity headroom, which management believes “eliminates any refinancing risk in the short and medium term”. It adds that it expects to receive some US$800m in 2H12 from the Gloucester-Yancoal merger and sale of a tank farm asset in Brazil. Noble further expects the market stress to provide it the opportunity to attract talent and invest in attractive assets to support its franchise. To account for the 1H12 performance, we are raising our FY12 revenue forecast by 7.9% but paring our core earnings by 2.8% on weaker margin assumptions. As we are also pushing out our valuations from FY12F EPS to blended FY12/13F EPS (still based on 10.5x), our fair value improves from S$1.21 to S$1.28. We also upgrade our call from Hold to BUY.

Decent 1H12 results
Noble Group (Noble) reported 1H12 revenue rising 19% to US$47,069.0m, meeting 54.4% of our original FY12 forecast, driven by its Energy and MMO (Metals, Minerals and Ores) segments, although its Agricultural segment was impacted by high volatility and difficult weather conditions. Reported interim net profit though slipped 11% to US$304.9m, which included US$100.3m gain from the Glouchester-Yancoal deal and a tax credit of US$10.5m. Excluding these items and other one-off impairments, we estimate that core earnings would have come in around US$230.3m, or 40% of our FY12 forecast.

Higher volumes but margins weaker
Although Noble saw a record tonnage of 107m in 1H12, up 9% over 1H11, operating margins were lower across the board, with MMO being the worst hit, falling to 0.8% in 2Q12 from 2.2% in 1Q12 and 1.6% in 2Q11; we suspect this could be due to weaker iron ore prices. Agriculture margin appears to be stabilizing around 1.2% and should improve in 2H12. Energy margin is holding well around 1.9%.

Liquidity position remains strong
On its financial position, Noble notes that it currently has about US$6.2b worth of debt headroom, which management believes “eliminates any refinancing risk in the short and medium term”. It adds that it expects to receive some US$800m in 2H12 from the Gloucester-Yancoal merger and sale of a tank farm asset in Brazil. Noble further expects the market stress to provide it the opportunity to attract talent and invest in attractive assets to support its franchise.

Upgrade to BUY with new S$1.28 fair value
To account for the 1H12 performance, we are raising our FY12 revenue forecast by 7.9% but paring our core earnings by 2.8% on weaker margin assumptions. As we are also pushing out our valuations from FY12F EPS to blended FY12/13F EPS (still based on 10.5x), our fair value improves from S$1.21 to S$1.28. We also upgrade our call from Hold to BUY.