Wednesday, August 14, 2013

Noble Group Ltd: Downgrade to SELL with S$0.76 FV (OCBC)

Noble Group Ltd:
Fair value S$0.76
add: 12m dividend forecast S$0.030
versus: Current price S$0.915

Downgrade to SELL with S$0.76 FV
• 1H met 20% of FY estimate
• Agri continues to drag
• SELL with new S$0.76 FV

Noble Group (Noble) reported a poor set of 1H13 results last Wed, marred by losses in its Agricultural segment in 2Q13, such that reported earnings only met 20% of our full-year forecast. No doubt the second half tends to be seasonally stronger; but we suspect that its Agriculture segment could continue to be a drag on its overall profitability.
As such, we see the need to sharply reduce our FY13 earnings forecast by as much as 43% (FY14 by 18%); the group’s targeted cost savings will probably have a more meaningful impact in FY14. Even as we roll forward our 10x valuation to blended FY13/FY14F EPS, our fair value will drop sharply from S$1.09 to S$0.76. Downgrade our call from Hold to SELL.

1H13 marred by Agri losses
Noble Group (Noble) reported a poor set of 1H13 results last Wed, marred by losses in its Agricultural segment in 2Q13, although shipment again hit another record of 110m tonnes. While revenue inched up 2% to S$47.9b, meeting 48% of our full-year forecast, reported net profit tumbled 66% to US$104.1m, making up just 20% of our FY13 estimate. For 2Q13, revenue was up 4.6% YoY and 12.2% at US$25.3b, while net profit fell 68% YoY (+52% QoQ) to US$62.8m.

Weighed by Agriculture segment
Although the Agriculture segment saw record tonnage as a result of the ramp-up in operations, it continued to post significant operating loss of US$120.3m in 1H13 (loss of US$53.7m in 2Q13). Management attributed it to several factors – namely the low sugar prices, limited access to port facilities in Brazil; low ramp-up of its grains business in Brazil; and poor crush margins in China. While management remains upbeat about its long-term prospects, profitability may continue to take a hit in the near term as long as sugar prices remain around current levels of US$0.16/pound.

2H showing unlikely to improve much
No doubt the second half tends to be seasonally stronger; but we suspect that its Agriculture segment could continue to be a drag on its overall profitability. As such, we see the need to sharply reduce our FY13 earnings forecast by as much as 43% (FY14 by 18%); the group’s targeted cost savings will probably have a more meaningful impact in FY14. Meanwhile, Noble intends to continue with its “asset lighter” strategy, despite the sale of its Papua palm oil plantation to Wilmar International falling through.

Downgrade to SELL
Even as we roll forward our 10x valuation to blended FY13/FY14F EPS, our fair value will drop sharply from S$1.09 to S$0.76. Downgrade our call from Hold to SELL.



Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 12/08/13

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