Warrants Highlight

Noble - Earnings disappoints

Last Thursday after market hours, Noble announced their third quarter earnings which missed analysts’ estimates. The trading session immediately after saw the counter diving 7.8% day on day. Looking at Monday’s close, the counter has fallen 8.6% in two days.

Macquarie’s Noble warrants

Macquarie Equities Research (MER) mentioned in its report that Noble’s 3Q12 clean earnings per share came in 60% below its forecast (broadly in line with consensus). Year to date returns on equity is tracking below Noble’s cost of equity again, and MER thinks the return path to a mid teens ROE has been pushed out. This puts pressure on the 1.4x price per book multiple (for FY12E) implied by MER’s 12-month price target of $1.40 (which is currently under review).

Noble’s 3Q12 clean EPS came in 60% below MER’s estimate, as all three divisions fell short of MER’s expectations. MER was a bit surprised to see management characterize the results as “strong” in their media release.

Energy was most disappointing. A key issue was lower trading liquidity in the US gas and power markets, due to heightened regulation. That is a risk factor MER heard about for the first time, and it sounds like one that could persist for the next few years. Lower coal prices also impacted Noble.

The Agri division was impacted by weak volumes and crush margins in Argentina. This was also a bit surprising in light of better results at peers. Noble does foresee a better FY13, as better harvests are expected then, but indicated that margins would remain soft into year end. Chinese crush margins also stayed negative in the quarter, which is a longer term structural problem, MER thinks. These factors offset seasonally better results in the Brazilian sugar business. MER was a bit disappointed to hear that it would take until 2014 to reach maximum cane crushing capacity there though.

The ROE recovery story is stalling. Noble’s quarterly results have always been volatile. So MER also tracks book value per share (BVPS), which came in closer to MER’s estimate. That said, Noble’s ROE stood at 11% through September, making MER’s FY12 target of 13.6% look unachievable. MER thinks the rebound to mid teens ROE it expected for 2013 now looks like it will be pushed out as well, despite new management’s cost cutting efforts in selling, general and administrative (SG&A) and net interest expenses.

MER’s outlook for Noble
MER’s estimates (for earnings and target price) are under review and MER sees 15-20% downside pressure to consensus estimates for 2012-13E. At this point in time, MER has an ‘Outperform’ rating with a 12-month price target of $1.40 which is under review.

Singapore Market Wrap

Quiet market before Deepavali

The STI remained lackluster as it ends its Monday's trading session down marginally 0.1% to 3007.6 ahead of Tuesday's public holiday. Concerns on the US' "fiscal cliff" issue and European countries' ability to keep bailout terms in check continue to act as possible deterrents to investors buying into the market.

Call STI 3100MBeCW130131 (PA7W) exercise level 3,100.*
Put STI 2800MBePW130131 (PA8W) exercise level 2,800.*

Malaysia's palm oil stockpiles increased less than expected
According to a Bloomberg report, palm oil stockpiles in Malaysia climbed less than expected as exports surged. Based on Palm Oil Board data, exports rose 16% and output dropped 3.3%, while the 1.1% rise of palm oil inventories was less than the median of Bloomberg's survey. Bumitama Agri slipped 0.5% to $1.03, Indo Agri dropped 0.4% to $1.225 while Wilmar stayed flat at $3.17 for the trading session.

Call Bumitama MBeCW130603 (RD1W) exercise price $1.10.*

Call INDOFMBECW121203 (QR7W) exercise price $1.30.*

Call Wilmar MBeCW130102 (Q5QW) exercise price $3.15.*
Put Wilmar MBePW130116 (Q5RW) exercise price $3.15.*

Genting net profit down 47%
Genting has reported a net profit of $110.3 million, down 47% year-on-year. It's Resorts World Sentosa contributed revenue of $662 million with its hotel business seeing an increase in it's occupancy rate to 93%. Genting is currently incurring pre-opening operating costs without revenue as the Marine Life Park moves into its final pre-operations phase. Prior to the news release, Genting had remained flat at $1.235 day-on-day.

Call GentingSMBeCW130107 (Q3KW) exercise price $1.30.*
Put GentingSMBePW130103 (QZ2W) exercise price $1.30.*

Overnight Market Wrap

2 more years for Greece

While the Singapore equity market was closed for Deepavali, the European finance ministers met to discuss the debt situation in Greece.

The ministers had planned to decide if the next tranche of aid should be given out to Greece on 12 November, but failed to reach a conclusion. They left the decision to 20 November although it is unclear if the International Monetary Fund will continue to contribute. In addition, Greece is given two extra years, until 2016 to lower their deficit to 2% of gross domestic product.

This week, Obama has invited top Republican and Democratic leaders to discuss how to avoid the ‘fiscal cliff' which threatens to send the US into a recession. Amid concerns over the situation, the S&P Index fell 0.4% across two days, closing at 1374.53 last night.

Overnight Markets

Indices	Last	Change
STI	3007.57	-0.1%
HSI	21188.70	-1.1%
DJIA	12756.20	-0.5%
S&P 500	1374.53	-0.4%
Nasdaq	2883.89	-0.7%
China A50	7092.62	-1.5%

Corporate News

Corporate Announcements

Bumitama Agri has obtained syndicated loan facilities of US $170 million, this consist of a 5-year US$120 million term loan as well as a 3-year US$50 million revolving loan facility.

Earnings release dates:
Wed 14 Nov: GLP (2Q13)
Wed 14 Nov: City Dev (3Q12)
Wed 14 Nov: Midas (3Q12)
Wed 14 Nov: Singtel (2Q12)
Wed 14 Nov: China Minzhong (1Q13)
Wed 14 Nov: Olam (1Q13)
Wed 14 Nov: STX OSV (3Q12)

Ex-dividend dates:
Fri 7 Dec: SPH ($0.17)