Noble

OCBC on 29 Feb 2012

Noble Group (Noble) reported better performance in 4Q11, suggesting that the worst is likely over. For FY11, revenue jumped 42% to US$80,732m, or 0.4% above our forecast, while reported net profit slipped 29% to US$431m, it was around 13% above our forecast. However, we note that there could still be a dearth of near-term catalyst. While Noble revealed that it expects some development on the Gloucester-Yancoal merger front next week, management does not expect any deal to take place in 1Q12. Management also did not elaborate much on its planned listing of its Agri-business on SGX other than saying it has a new CEO for that division. While we are increasing our valuation peg from 10.5x (one standard deviation below 5-year mean) to 11.1x (0.5 SD), a lower USD/SGD assumption negates the increase, thus maintaining our fair value at S$1.46. Given the limited upside for now, we maintain our HOLD rating. We would be buyers closer to S$1.30.

Improvement in 4Q11
Noble Group (Noble) reported better 4Q11 results. Reported net profit though fell 57% YoY to US$106m, and it was an improvement from the US$18m net loss in 3Q11. For FY11, revenue jumped 42% to US$80,732m, or 0.4% above our forecast, while reported net profit slipped 29% to US$431m, it was around 13% above our forecast. However, if we strip out the likely one-off items, we estimate that recurring earnings would have slipped 29% to US$288m. Meanwhile, Noble has recommended a final dividend of 1.65 US cents per share, payable in cash or scrip, versus 2.5 US cents last year.

Margins showing slow recovery
Although overall net margin slipped from 1.1% in FY10 to just 0.5% in FY11, its various segments have started to show steady recovery. For Agriculture business, operating margin has improved from 1.2% in 3Q11 to 2.8% in 4Q11, but off 4Q10’s 10.9% margin. For Energy, operating margin has actually surpassed 4Q10’s 1.1% and 3Q11’s 1.3% to hit 1.6%. For its Metals, Minerals and Ores (MMO), operating margin also improved from 3Q11’s 0.6% to 0.7%, but still way below 4Q10’s 2.2%.

Worst is likely over but still lacks catalyst
Based on 4Q11 results, it appears that the worst is likely over. However, we note that there could still be a dearth of near-term catalyst. While Noble revealed that it expects some development on the Gloucester-Yancoal merger front next week, management does not expect any deal to take place in 1Q12. Management also did not elaborate much on its planned listing of its Agri-business on SGX other than saying it has a new CEO for that division.

Maintain HOLD with S$1.46 fair value
While we are increasing our valuation peg from 10.5x (one standard deviation below 5-year mean) to 11.1x (0.5 SD), a lower USD/SGD assumption negates the increase, thus maintaining our fair value at S$1.46. Given the limited upside for now, we maintain our HOLD rating. 

Noble

Kim Eng on 29 Feb 2012

In line with expectations. Noble’s fourth-quarter earnings returned to positive territory in a set of eagerly anticipated results. Though the results were only in line with consensus estimates, we expect this to spur a recovery in investor confidence. Net profit for 4Q11 was US$105.7m (US$72.2m excluding profit on supply chain assets). FY11 net profit showed a 29% decline to US$431.3m.

Below usual quarterly run-rate. Profitability for the quarter was below its previous run-rate, as we had expected, largely due to unfavourable macroeconomic factors. The decline in VaR (Value at Risk) since August last year to a historical low of 0.35% in December implied that Noble went into a more cautious mode in the fourth quarter, which was a factor in the lower profitability. With commodity prices exhibiting some stability, this should revert to normal over the next few quarters.

Tonnage growth. Full-year tonnage grew by 18% YoY, implying growth in overall business activities. The 10% YoY drop in overall gross profitability could be traced to the agriculture segment, which declined 37% YoY. Other than the well-documented issues with cotton farmers in the US, soybean crush margins in China remained poor, in line with what competitors like Wilmar have reported. For the sugar division, management shared that the integration of its newly acquired sugar mills in Brazil was smooth. Utilised capacity should increase 30% next year on expanded planting.

Book value increased. As a function of the caution exercised in 4Q11, working capital reversed itself from US$3.5b in December 2010 to US$3.2b, which resulted in adjusted net gearing falling from 50% to 45%. We believe the balance sheet strength would provide a solid platform for Noble to continue investment growth in 2012. Book value per share increased from US67cents to US71cents (estimated US74cents if the Yancoal deal is concluded).

Maintain Buy. With a possible agri business spinoff in the pipeline, a sharp recovery in earnings (which are leveraged to macro factors) and a return in investor confidence, Noble represents an asymmetric bet to a market recovery in 2012. The current price represents 1.45x P/BV, still one standard deviation below its historical mean. We maintain our Buy recommendation with a target price of $1.90 (pegged at 13x FY12).

Palm Players

Kim Eng on 22 Feb 2012

Wilmar International released its FY11 results this morning and the numbers were broadly in line with our forecasts as well as consensus estimates. However, its share price has taken a beating (-$0.50, -8.5%) in the aftermath, possibly due to contracted margins reported in 4Q11 for its palm and laurics merchandising and processing segment. The decline was caused by a variety of factors: unfavourable market conditions in China and India, ongoing European financial crisis and the disadvantaged position of Malaysia given new Indonesian export duty structure. There was also a significant drop in the 4Q11 contribution from other income (-US$36m, -60% YoY), arising from a decrease in gains from investment securities, lower fertiliser profits and lower shipping profits. As for future prospects, Wilmar is exploring closer collaborations to meet the growing demand for agricultural products.

Noble Group’s share price appears to have been dragged down the same way on high volume, perhaps due to the perception that it has some businesses similar to Wilmar’s. Nevertheless, it should be noted that the group does not have exposure to palm oil (though it has a 51% stake in an Indonesia-based palm plantation under development). Wilmar’s soybean crushing operations in China, where Noble is similarly exposed to, did stage a sharp turnaround to profitability against the same quarter last year, but profit was marginal and margins remained challenging.


Wilmar International (WIL SP, $5.35)
Key levels
Resistance 2: $6.00
Resistance 1: $5.50
Support 1: $5.25
Support 2: $4.80
The stock has unexpectedly staged a negative gap-down on huge volume today. This is often a negative indication that selling pressure is on the rise. With no sign of relief, the retracement could continue to trade towards the $5.25 support level. RSI is below the neutral level and heading towards the oversold region.


Noble Group (NOBL SP, $1.455)
Key levels
Resistance 2: $1.68
Resistance 1: $1.55
Support 1: $1.40
Support 2: $1.285
The stock price looks positive on both an intermediate and short-term time frame. It is currently trying to breach above the 200-day EMA. A pullback towards $1.40 seems likely if the stock fails to trade above the $1.55 level.


Golden Agri-Resources (GGR SP, $0.775)
Key levels
Resistance 2: $0.83
Resistance 1: $0.80
Support 1: $0.75
Support 2: $0.70
The broad overall trend in the medium term is still positive as defined by the key moving averages. Candlesticks are trading within the ascending channel, suggesting that the bullish trend is intact. Trading above the $0.80 level would indicate more buying ahead.

Noble

OCBC on 7 Feb 2012


Noble Group (Noble) unveiled its new CEO – Mr Yusuf Alireza – who will start his appointment on 16 Apr. Mr Alireza, formerly of Goldman Sachs, has been one of the fore-runners for the post and the appointment does not come as a total surprise. Meanwhile, the current price recovery (up 27% YTD) seems to have factored in most of the positives, including the appointment of a new CEO. Hence, we are only upgrading our call to HOLD, albeit with an improved S$1.46 fair value. We would be buyers closer to S$1.30.

Appoints new CEO

Noble Group (Noble) unveiled its new CEO – Mr Yusuf Alireza – who will start his appointment on 16 Apr. Mr Alireza, formerly of Goldman Sachs, has been one of the fore-runners for the post and the appointment does not come as a total surprise. In any case, Noble’s share price has already staged a remarkable recovery since the start of the year, rising some 27% YTD, and was again up 3.2% yesterday ahead of this latest development.

Market sentiment improving, lifted by US & China
The stock price recovery could well be buoyed by the rapid improvement in market sentiment, especially after reassuring data points from both the US and China, despite the still-uncertain debt crisis in Europe. We note that increased liquidity in the market is probably another key reason behind the recent market rally. Furthermore, investors also naturally gyrate towards high-beta stocks like commodity plays to maximise any market movements.

Upgrade to HOLD with S$1.46 fair value
While the market appears to be anticipating a rather strong recovery, the global economy is by no means out of the woods yet. As such, any adverse news could still bring about a hefty pullback. Nevertheless, in line with the improved sentiment, we are raising our FY12 earnings estimate by 23%, mainly due to higher margin assumptions. We are also raising our valuation peg from 9x (1 standard deviation below its mean to 10.5x (0.5 SD below mean), which in turn raises our fair value from S$1.02 to S$1.46. However, the current price recovery seems to have factored in most of the positives, including the appointment of a new CEO. Hence, we are only upgrading our call to HOLD. We would be buyers closer to S$1.30. 

Noble

Kim Eng on 6 Feb 2012

Stock price has recovered 17% since its unexpected 3Q11 loss. We believe Noble’s 4Q11 results, to be announced on 28 February, will be watched closely by the market. The difficulty in forecasting the group’s short-term earnings with certainty is most evident in the light of the loss, which took the entire market by surprise. We expect Noble to return to profitability with 4Q11 net profit of US$106m, but this would still be below profits of US$140-200m recorded in previous quarters.

Recapping the reasons for the third-quarter loss. Outside of the macro uncertainty and overall volatile market, there were three one-off events which resulted in the perfect storm: (1) US farmers defaulting on cotton contracts, (2) mark-to-market losses on carbon credits, and (3) depreciation of the Brazilian real. We believe that if any one of these events had not occurred, Noble would have been in positive territory.

Not this time. Noble was hit by unprecedented price volatility in the cotton markets in the first half of 2011, which made the defaults expensive. Since July, prices have stabilised. Carbon credit prices continued to decline in 4Q11, but management has limited new origination activities and further write-downs, if any, are likely to be limited. The Brazilian real, which had been the worst-performing major currency up to 3Q11, recovered strongly in 4Q11.

Macro factors still weak in 4Q. However, the macro factors which affected 3Q11 continued to linger into 4Q11. Soybean crushing margins in China, where Noble has four crushing plants, sank to new lows and remained in negative territory on soft demand. The sugarcane harvest in Brazil, where Noble has four sugarcane mills, remained weak due to adverse weather. On the positive side, the commodity demand outlook has improved since the turn of the year, which may herald a much more positive 2012 for Noble.

Reiterate Buy ahead of results. With a possible agri business spinoff in the pipeline, a sharp recovery in earnings leveraged to macro factors and a return in investor confidence, Noble represents an asymmetric bet on market recovery. The current price represents 1.3x FY12F P/BV, a strong floor to the share price, in our view. Maintain Buy with a target price of $1.85 (pegged to 13x FY12F), in line with its historical mean.

Noble

DBS Vickers on 17 Jan 2012

DBS Vickers Securities in a Jan 17 research report says: "While 3Q11 earnings were disappointing and there are concerns arising from the outlook for softer global economic growth and uncertainty regarding its next CEO, Noble remains in a strong financial position.

 "We expect Noble to book decent 4Q11 core profit of US$86.8 million (-67% y-o-y) versus a US$17.5 million loss in 3Q11 on recovery of commodity prices and reversal of mark-to-market currency losses.

 "Proposed capital recycling through the divestment of its Agriculture segment and a merger of Gloucester Coal with Yanzhou Australia should crystallise value and contribute towards seed money for Noble for further investments going forward. Target price of $1.45. MAINTAIN BUY.

Noble

Kim Eng Research 27 Dec 2011


Unlocking value in Gloucester Coal
Proposed merger. Noble Group’s 64.5%-owned ASX-listed subsidiary, Gloucester Coal, has announced a merger with Yancoal, the Australian mining assets of Hong Kong-listed Yanzhou Coal Mining. Upon completion of the deal, Noble will hold an estimated 13.7% stake in the enlarged entity and Yanzhou, approximately 77% stake. Cutting a deal so close to the Christmas holiday season suggests to us that Noble management is fully committed and firing on all cylinders.
Realising value upfront. Noble stands to book a one-off gain of US$200m from the transaction, lifting its NTA per share by about 5% to US$0.69. Also, prior to the merger, Gloucester will conduct a capital distribution at A$3.20/share, with Noble receiving US$416m. With the contingent value rights given to Gloucester’s minority shareholders guaranteeing a price of A$6.96/share, this implies a value of A$10.20/ share for Gloucester (A$2.1b), a 45% premium over its last traded price.
Freeing up cash at an opportune time. One major benefit of the proposed transaction is that it frees up cash for Noble at a time when there may be other distressed assets for sale. As part of the agreement, Yanzhou will bring in financing deals worth US$2.7b, enabling Gloucester to return Noble’s shareholder loans and also accelerate projects to optimize its massive coal reserves potential.
Off-take agreements will continue. Noble has off-take agreements with Gloucester Coal, which will remain in place after the transaction. The group will thus continue to market Gloucester’s coal for a fee, which is, arguably, its core business. The enlarged entity will become a leading mining company on ASX and will have the ninth-largest coal reserves globally. This suggests more business for Noble, enhancing its position as a leading coal marketer globally.
A positive move in our opinion. Since its 3Q11 profit disappointment, Noble has been trading closer to book value. Hence, any move to crystallise book value should be positive for the stock price. The deal is subjected to approvals by various authorities. Earnings impact is not quantifiable yet, but should be mildly positive. We have kept our estimates and target price of $2.00 (13x FY13F). Maintain Buy.