Noble Group - OCBC Investment 2016-02-26: 1H16 could still be tough

NOBLE GROUP LIMITED N21.SI

Noble Group Ltd: 1H16 could still be tough

Noble Group, as guided, recorded a loss for FY15; this after making impairments against its investments (mainly coal) and its other supply chain assets.
Reported PATMI came in at a loss of US$1672.0m, which included an exceptional loss of US$1915m.
On an adjusted basis, net profit would have been around US$244.2m, but still down 57% and also about 12% below our forecast.
Besides lower commodity prices, which resulted in FY15 revenue dropping 22% to US$66712.4m, management also highlighted that the strong Energy business was offset of losses in its Metals & Mining segment.
Noble did not declare any dividend this year (versus 1 US cent for FY14).

As with the first 9M, the main drag on earnings came from the Metals & Mining segment, which saw EBIT loss blow out to US$175m in 4Q15, bringing its full-year EBIT loss to US$229m.
Given the extreme weakness in some areas of base metal, Noble has taken "aggressive steps" to shrink its balance sheet, footprint and headcount in this segment; Noble intends to just focus on its global vertically integrated supply chain for Alumina and its customer franchise in Asia.

On the other hand, Noble's Energy segment continues to do well in 4Q15, with shipments up 24% YoY and EBIT up 17%, despite the 34% drop in revenue.; this mainly due to lower energy prices. And with the oil market still undergoing some key structural changes, Noble believes that it will continue to provide an "opportunity-rich" environment for trading companies like itself to help with market rebalancing.
And despite the impairments to its long-term coal contracts, Noble believes that its business remains strong and is positioned for further growth.

Given the sputtering economic outlook globally and the still-bearish outlook for commodities in 1H16, chances are that we could see more near term pain before things get better.
We have also opted to pare our FY16 estimates by 19-24%; this in turn lowers our fair value from S$0.44 to S$0.39. Maintain HOLD.

Carey Wong CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-02-26

OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.39 Down 0.44