Noble Group Ltd - OCBC Investment 2015-11-13: HOLD with new S$0.54 FV

Noble Group Ltd - OCBC Investment 2015-11-13: HOLD with new S$0.54 FV NOBLE GROUP LIMITED N21.SI 

Noble Group Ltd: HOLD with new S$0.54 FV 

 9M NPAT met 61% of FY15 forecast 
 No near-term catalysts yet 
 Lower FV of S$0.54 

3Q15 tracking slightly below forecast 

  • Noble Group (Noble) reported its 3Q15 results last evening, with revenue easing another 20% YoY to US$18692.7m, but mostly reflecting lower commodities prices; this as shipment volumes continue to increase. 
  • Noble shipped some 73.0m tonnes in 3Q15, versus 50.8m in 3Q14 and 67m in 2Q15. However, due to larger associate loss of US$62.1m (+298%) as well as US$24.4m loss on supply chain assets (versus US$74.7m profit in 3Q14), net profit suffered a 82% tumble to US$24.7m. 
  • 9M15 revenue fell 17% to US$53,690.2m, meeting 69% of our full-year forecast, while net profit tumbled 48% to US$193.9m, or about 61% of our FY15 estimate, which we deem to be slightly below forecast. 

Metals & Mining was weak again 

  • As in the 2nd quarter, the main drag on earnings came from the Metals & Mining segment, which turned in an EBIT loss of US$68.9m in the 3Q15; besides a difficult Aluminium market, Noble noted that demand weakness has continued to weigh heavily on prices and premiums across the non-ferrous metals, including copper, zinc and lead. 
  • Going forward, Noble expects the demand softness for these non-ferrous and ferrous metals to remain, citing sluggish growth in China and other emerging markets. But we understand that it has taken steps to right size the operations and should see earnings starting to stabilize, if not recover, in the next few quarters. 

Bright sparks in the quarter 

  • On the other hand, Noble's Energy segment continues to do well in 3Q15, with shipments up 36% and EBIT up 416%, despite the 22% drop in revenue. 
  • Other bright sparks in the quarter include the group turning in a positive net operating cashflow of US$318m; costs down every quarter since 4Q14, putting it on track to meet its US$70m cost saving target; adds capex down over 80% and cash used in investing activities down over 70%. 
  • Last but not least, Noble is committed to raising US$500m through asset disposals and/or other strategic option to further beef up its balance sheet. 

Maintain HOLD with new S$0.54 FV 

  • To reflect latest YTD performance as well as outlook, we pare our FY15 earnings forecast by 12% (FY16 by 10%), which in turn reduces our fair value from S$0.60 to S$0.54. 
  • Maintain HOLD.

Carey Wong CFA OCBC Securities | http://www.ocbcresearch.com/ 2015-11-13
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.54 Same 0.60