Thursday, October 3, 2013

Noble Group Ltd: X2 JV will yield long-term benefits (OCBC)

Noble Group Ltd:
Fair value S$0.76
add: 12m dividend forecast S$0.030
versus: Current price S$0.930

X2 JV will yield long-term benefits
• US$500m investment
• Focus on logistics services
• SELL as near-term headwind persists

Noble Group (Noble) has announced that it has agreed to invest in a newly established private mining venture – X2 Resources – where Noble, X2, TPG will each put in US$500m. Under the agreement, Noble will be X2 Resources’ preferred marketer and provider of supply chain management (SCM) and logistics services, which is in line with its strategy to focus on its core competence as a supply chain manager.
While we do see benefits from the investment, we note that most will need some time to flow through i.e. more medium to long term in nature. But for now, we believe that headwinds could continue to come from the sluggish economy in China. We further expect its Agriculture segment to remain a drag on its overall profitability. Separately, the potential shutdown in Washington could also weigh on sentiment. As such, we maintain our SELL rating and S$0.76 fair value. We would be buyers below S$0.80 (recent low was S$0.785).

New mining JV
Noble Group (Noble) has announced that it has agreed to invest in a newly established private mining venture – X2 Resources – where Noble, X2, TPG will each put in US$500m. The move is to create a new mid-tier diversified mining and metals group by leveraging the extensive track record of the X2 Team in identifying and acquiring assets/businesses at an opportune time in the cycle and applying their proven approach to integration and value enhancement to the resulting portfolio of operations.

Preferred marketer and SCM and logistics services provider
Under the agreement, Noble will be X2 Resources’ preferred marketer and provider of supply chain management (SCM) and logistics services. According to management, the investment is consistent with Noble’s previously communicated strategy of primarily focusing on its core competence as a supply chain manager, rather than a producer of natural resources. Management also believes that the relationship with X2 will open opportunities for Noble to provide energy, manage X2’s freight requirements and risk-manage the supply chain for example.

More medium to long-term benefit
While we do see benefits from the investment, we note that most will need some time to flow through i.e. more medium to long term in nature. Hence, we will not be making any adjustments to our forecasts (we have already previously cut FY13 earnings estimate by 43% after a dismal 1H showing). But for now, we believe that headwinds could continue to come from the sluggish economy in China. We further expect its Agriculture segment to remain a drag on its overall profitability. Separately, the potential shutdown in Washington could also weigh on sentiment. As such, we maintain our SELL rating and S$0.76 fair value. We would be buyers below S$0.80 (recent low was S$0.785).



Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 01/10/13

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