Not time to bottom-fish
- Share price plunged over fears of falling commodity prices, weak earnings & possible credit-rating downgrade.
- Expect share buybacks to provide some support.
- Maintain HOLD with lower GGM-based TP of SGD0.75 from SGD0.96. Now pegged at lower 0.6x P/BV from 0.8x to factor in investors’ lower risk appetite. Recommend Wilmar for sector exposure.
What’s New
- Noble’s share price has shed 11% in the past 1 month and is now trading at 0.6x P/BV.
- Its bond price has also plunged, with its CDS surging significantly.
- We believe that the underperformance in its share price was due to market skittishness over falling hardcommodity prices, weak earnings prospects and a possible creditrating downgrade.
What’s Our View
- We think the concerns are valid. Short-term earnings are likely to miss market expectations due to lower trading margins, potential further asset impairments and more conservative revenue recognition after Iceberg’s and Muddy Waters’ allegations.
- S&P’s recent downgrade of Noble’s outlook from ‘stable’ to ‘negative’ also raised the spectre of an eventual credit-rating downgrade.
- Noble is trading at 0.6x FY16 P/BV, near its 0.5x bottom during GFC. We think it faces more operational challenges now than during GFC.
- That said, its aggressive share buybacks could provide some support, we believe.
- As such, maintain HOLD.
- We keep our EPS but lower our GGM-based TP to SGD0.75 from SGD0.96.
- We now ascribe 0.6x P/BV rather than 0.8x to reflect investors’ lower risk appetite. We also roll over to FY16.
(Wei Bin)
Source: http://www.maybank-ke.com.sg
