Tuesday, 12 August 2014


Kim Eng on 8 Aug 2014

  • 2Q14 results missed due to margin corrections.
  • Limited chance of positive earnings surprises in 2H14.
  • Downgrade to HOLD from BUY with higher TP of SGD1.47 (SGD1.37 previously; GGM) after rollover. Switch to Wilmar for sector exposure.
Weaker than expected
2Q14 net profit missed due to margin correction at its Energy and  MMO divisions. Despite revenue growth of 12.5% YoY, net profit  from continuing operations (excluding agriculture) dropped 48.3%  YoY and 52.9% QoQ. 2Q14 net profit, including agriculture, was up  4.8% YoY but down 56.8% QoQ. 1H14 net profit formed 36.6% of our  full-year forecast. We are reviewing our FY14E-16E  forecasts. OP margins for both Energy and MMO corrected after a very strong  1Q. This was partly compensated by much narrower losses at agriculture, to USD0.3m from USD54m in 2Q13 and  USD42m in  1Q14.

Fairly valued
Management sees improving soybean crushing margins in China and  expects a ramp-up of utilisation in other countries. It continues to  negotiate with COFCO on a spin-off of its agriculture business and  we expect a close by year-end.  Although the decline in its Energy OP margins could be seasonal a  substantial margin recovery at MMO is unlikely, in our view. As  such, positive earnings surprises could be limited. Noble has rallied nearly 10% in the last three months to hit our TP.  We think it is fairly valued based on GGM. Downgrade to HOLD  from BUY, albeit with a higher TP of SGD1.47 as we roll over to  1.2x FY15E P/BV.

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