Noble Group (Noble) reported 3Q12 revenue of US$22.7b, though up 9% YoY, it was down 6% QoQ. Net profit came in at US$75.2m; while it had reversed a net loss of US$17.5m a year ago, it missed the street’s US$155m forecast. For 9M12, revenue grew 15% to US$69.8b, meeting 75% of our FY12 forecast, while net profit climbed 17% to US$380.1m, or 68% of our full-year number. Estimated core earnings (without disposal gains) of US$282.9m formed just 50% of our forecast. We expect Noble to see a negative knee-jerk reaction to its lower-than-expected earnings (we have also cut our FY12 and FY13 forecasts to incorporate still-weak margins). We also downgrade our call to HOLD, given that the stock has risen some 21% since our upgrade on 14 Aug. But we believe Noble should start looking towards a reasonable recovery next year; and we have moved our valuation to FY13 with a higher 12x (versus 10.5x blended previously) peg, which keeps our fair value unchanged at S$1.28.
QoQ weakness in 3Q12 results
Noble Group (Noble) reported 3Q12 revenue of US$22.7b, though up 9% YoY, it was down 6% QoQ. Net profit came in at US$75.2m; while it had reversed a net loss of US$17.5m a year ago, it missed the street’s US$155m forecast, and was also down 61% QoQ. For 9M12, revenue grew 15% to US$69.8b, meeting 75% of our FY12 forecast, while net profit climbed 17% to US$380.1m, or 68% of our full-year number. Estimated core earnings (without disposal gains) of US$282.9m formed just 50% of our forecast.
Operating performance mixed
While Noble saw a record tonnage of 166m tonnes in 9M12, up 5%, its performance was quite mixed, as overall operating margin slipped to 1.4% in 3Q12 from 1.6% in 2Q12. Agriculture margin has recovered further to 1.9% in the quarter (versus 1.2% in 2Q12), likely aided by its improved sugar operations in Brazil, but the environment for Grains & Oilseeds remained weak. Energy margin fell further to 1.4% (versus 1.9% in 2Q12); but management expects contributions from the newly acquired gas and power assets to gain traction going into 2013. MMO (Metals, Minerals and Ores) saw margin slipping to 0.7% from 0.8% in 2Q12, weighed by continued weakness in iron ore prices; and Noble says it will continue to take a cautious stance on the market.
Downgrade to HOLD with unchanged S$1.28 FV
We expect Noble to see a negative knee-jerk reaction to its lower-than-expected earnings (we have also cut our FY12 and FY13 forecasts to incorporate still-weak margins). We also downgrade our call to HOLD, given that the stock has risen some 21% since our upgrade on 14 Aug. But we believe Noble should start looking towards a reasonable recovery next year; and we have moved our valuation to FY13 with a higher 12x (versus 10.5x blended previously) peg, which keeps our fair value unchanged at S$1.28.
Noble Group (Noble) reported 3Q12 revenue of US$22.7b, though up 9% YoY, it was down 6% QoQ. Net profit came in at US$75.2m; while it had reversed a net loss of US$17.5m a year ago, it missed the street’s US$155m forecast, and was also down 61% QoQ. For 9M12, revenue grew 15% to US$69.8b, meeting 75% of our FY12 forecast, while net profit climbed 17% to US$380.1m, or 68% of our full-year number. Estimated core earnings (without disposal gains) of US$282.9m formed just 50% of our forecast.
Operating performance mixed
While Noble saw a record tonnage of 166m tonnes in 9M12, up 5%, its performance was quite mixed, as overall operating margin slipped to 1.4% in 3Q12 from 1.6% in 2Q12. Agriculture margin has recovered further to 1.9% in the quarter (versus 1.2% in 2Q12), likely aided by its improved sugar operations in Brazil, but the environment for Grains & Oilseeds remained weak. Energy margin fell further to 1.4% (versus 1.9% in 2Q12); but management expects contributions from the newly acquired gas and power assets to gain traction going into 2013. MMO (Metals, Minerals and Ores) saw margin slipping to 0.7% from 0.8% in 2Q12, weighed by continued weakness in iron ore prices; and Noble says it will continue to take a cautious stance on the market.
Downgrade to HOLD with unchanged S$1.28 FV
We expect Noble to see a negative knee-jerk reaction to its lower-than-expected earnings (we have also cut our FY12 and FY13 forecasts to incorporate still-weak margins). We also downgrade our call to HOLD, given that the stock has risen some 21% since our upgrade on 14 Aug. But we believe Noble should start looking towards a reasonable recovery next year; and we have moved our valuation to FY13 with a higher 12x (versus 10.5x blended previously) peg, which keeps our fair value unchanged at S$1.28.
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