Thursday, March 1, 2012

Noble: Managing volatility (DBSV)

Noble Group
HOLD S$1.38
Price Target : 12-Month S$ 1.45
Managing volatility
• Profit recovered as expected, but 4Q11 earnings of US$72.2m (ex exceptionals) was below
• Energy and MMO underperformed, Agriculture came in line
• FY12-14F earnings cut by 11-23% on lower operating margin/MT assumptions • TP cut to US$1.11 from US$1.25 but expectations of a weaker SGD keep TP at S$1.45; retain HOLD

Energy dragged down earnings. Noble booked 4Q11 earnings of US$105.8m (-60% y-o-y). Excl. US$33.5m profit from Supply Chain assets, earnings came in at US$72.2m (from US$34.8m loss in 3Q11). While we did expect a recovery in earnings, operating profit from Energy was below due to production problems at Gloucester Coal which (1) experienced flooding in 3Q11 and was unable to recover lost volumes due to restrictions on rail haulage and (2) equipment issues at Donaldson. The segment was also hit by lower gas and power demand as a result of a mild US winter.

Agriculture performed rather well, considering peers' performance. We had expected FY operating profit of US$467m vs. actual of US$476.5m. We understand that China’s crushing business utilisation was low, but Noble had hedged part of its crushing operations in Timbues. Sugar also performed well, as it had locked in margins during a temporary rally in 4Q11. MMO business remained challenging. It booked operating margin of US$17.9m in 4Q11, which was below our US$23.3m estimate.

FY12-14F earnings cut by 11-23% after we imputed FY11 actual numbers and adjusted our operating margin/MT assumptions lower across the 3 main segments. We expect earnings recovery to be constrained by increased competition and reduction in Noble’s risk appetite. VAR (value at risk) has been cut from 0.86% in Feb11 to 0.35%in Dec11. In USD terms, our TP was cut by 11% to US$1.11. But, as we revised FY12F average USD/SGD rate to S$1.31 from S$1.25, this translated to S$1.45 TP. Maintain HOLD. Potential catalyst is regulatory approval for the merger of Gloucester Coal and Yanzhou scheduled for mid 2012.

Source/Extract/Excerpts/来源/转贴/摘录: DBS Vickers Research
Publish date: 29/02/12

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