At inflection point
NEUTRAL - Maintained | S$1.08 - TP: S$1.04
▊ Stripping out the US$79m in losses of its associates, Noble posted an operationally decent 3Q, which met the Street’s expectations. The 3Q provides the first hint of a turnaround, but we think that a gradual recovery could be priced in already. Stripping out US$79m in losses of its associates, 9M formed 72% of consensus’s forecast. We are resuming coverage of Noble with an unchanged Neutral rating, but a lower target price after rolling forward to 10x CY15 P/E (0.5x s.d. below its 5-year mean) and lowering our FY13-15 EPS. We believe that the recent 35% increase in share price has already been factored into a gradual recovery.
3Q: operationally decent
The 3Q core net profit of US$106m grew 57% yoy, thanks to positive contributions from all business segments. 3Q headline profit of US$23m was impacted by a US$79m non-cash loss (consisting of FX losses on US$ borrowings due to a sharp depreciation in the A$ and impairment loss) in Noble’s associate Yancoal Australia.
Agriculture & Energy let down by MMO
Agriculture swung back into the black in 3Q13 on the back of improving crush margins after negative gross profit in 1H13. The Brazilian sugar mills have also become profitable due to efficiencies as a result of scaling up, and a more supportive sugar price. Energy saw revenue and margins improve yoy. Gas and power continue to be a source of growth. Metals, minerals and ores (MMO) was the fly in the ointment, posting lower tonnage and operating income.
We believe that Noble is turning the corner slowly, but surely. However, challenges such as infrastructural bottlenecks in Brazil, oilseed crushing overcapacity in China and the longer-than-expected gestation of MMO could blunt recovery. We expect a slow recovery and believe that the recent 35% increase in share price has factored that in as well.