Most leveraged China economic activity. We see Noble as most leveraged to an improvement in China’s economic activity in 2013, especially industrial output. Excluding its oil & gas business, China is its single biggest market, which we estimate account for more than 30% of total group tonnage. Its importance as a commodity supplier is also likely a key consideration when China Investment Corp (CIC) took up a substantial stake in 2009.

Important supplier of coal, iron ore. While on-ground assets in China are quite light (limited to oilseed crushing and storage), Noble is one of the largest supplier of hard commodities such as coal and iron ore into China, sourced from other countries. Improved demand in 2013 could mark a significant turnaround in profitability.

Diversified portfolio is more resilient. Noble has a business and asset footprint across the world, and is involved from energy to soft commodities. We believe this should allow them better opportunities to deploy capital profitably. Its earnings over the past twelve months have also been generated through lower VARs (0.52% in 3Q12), which may imply upside if 2013 turns out to be a conducive year for commodities demand.

Improving balance sheet strength. Amongst its peers, we believe Noble has the most robust balance sheet and debt structure in our opinion. We estimate net-debt/ equity will go down from 87% to 80% (adjusted net-debt/ equity from 35% to 28%) if we account for the expected cash proceeds from the Yanzhou-Gloucester deal in January 2013. Furthermore, the debt structure is also long-term in nature, with Noble holding investment grade ratings from S&P, Moody’s and Fitch (BBB- negative watch).

Upgrade to BUY. Given the difficult environment in 2012 for some of its key products and low VAR deployed, we believe profitability is likely not far from structural bottom. We now peg our TP of SGD1.48 to 12x FY13F, which is still lower than historical mean. Upgrade to BUY, with 26% upside from current levels.

Source: Maybank Kim Eng Research - 20 Dec 2012