Noble

Kim Eng on 11 May 2012

Look past the 46% net profit decline. 1Q12 was generally in-line with market expectations. Although headline net profit showed a 46% yoy decline to USD110m, this was largely due to a USD78m swing in nonrecurring asset profit. Excluding this, recurring net profit was USD136m, which was a 10% decline yoy but a good improvement from 4Q12.

Usual quarterly run-rate. Profitability appears to be back on track to its usual quarterly run-rate of USD150m-USD200m. The USD26m loss for supply chain assets relates mainly to its long-term equity portfolio as well as miscellaneous charges. For the same quarter last year, there was a USD53m gain from disposal of its fleet  management business. This is more commendable taking into account an addition seasonal effect at its agricultural business. Going forward, we are likely to experience weaker 1st quarters given the addition of its two newly acquired sugar mills in Brazil. for its

Additional seasonal effect. This set of results is more commendable taking into account an addition seasonal effect at its agricultural usiness. Going forward, we are likely to experience weaker 1st uarters given the addition of its two newly acquired sugar mills in Brazil. Production season is usually April-Dec. As a result of this as well as continued weak margins for soybean crushing, the agriculture segment showed weakness with a 63% yoy decline in gross profit.

Risk-off mode probably helped. Other businesses showed healthy profitability. Noble has remained at conservative VaR levels since late last year, which we believe helped protect profitability in this period of market volatility. The due diligence process for the Gloucester and Yancoal has been recently completed, and now awaits a Gloucester shareholder meeting to vote through, this is expected to add about 5% to its book value and free up A$412m.

Maintain BUY. While volatility in commodity prices may represent some earnings risk, we see the current share price as a good opportunity to accumulate for the long-term. It is trading at 1.15x P/B, for a company which has consistently generated ROE above 15%. We trim our earnings by 5-9% but maintain BUY with a TP of $1.67 (pegged to 12.5x FY12, average mean).