2Q10 earnings miss on lower margins, expansion costs
Noble reported 2Q10 ‘recurring’ net profit of US$47 million versus our estimate of US$140 million (as highlighted in our July 16, 2010 report, we thought 2Q10 would be weaker than expected
but closer to US$105-110 million), down 50% y/y. Key reasons for the variance were:
(a) lower dollar margins seen in agriculture (weak soy
crush margins), MMO and logistics, and
(b) substantial increase in SG&A costs mainly on start up costs on oil & gas expansion and other
segments (stands at 63% of gross profit with historical average being 44%). As a result we reduce 2010E/2011E earnings by 13.5%/5% and lower our SOTP-based Jun-11 PT from S$2.00 - S$2.50 to S$2
Management guided to a 15% RoE (down from 20% previously) for the current period given the challenging
operating environment and low-cost debt environment. However, the CEO, Ricardo Leiman, did highlight that he had never been “more optimistic” about the company, and reiterated goals of doubling earnings in the next 3-5 years.
Coal business remains the catalyst to watch out for; more investments likely, in our view: While we expect the stock to correct in the near term (on back of weak results), with over US$2 billion potentially available for investment, we believe we could see cash being invested in this regard, with a potential focus on coal investments (given the cash unlocking being undertaken within its GCL business).
Source: Bloomberg and JP Morgan
