• FY Core earnings 15% above
• Keeping FY14 estimates for now
• Maintain HOLD and S$1.03 FV

FY13 core earnings above forecast

Noble Group (Noble) reported its FY13 results, with revenue rising 4% to US$97.878b, or just 1% below ours and street’s forecast, as it achieved another record tonnage of 233.4m tons, buoyed by QoQ improvement during 2013 in both operating income from supply chains and net income. Although reported net profit tumbled 48% to S$243.5m, it was largely due to the non-cash charge of US$103m from its share of Yancoal's loss. Excluding that charge, Noble noted that its core earnings would have come in around US$349m, or about 15% above our forecast (8% above consensus). Noble declared a final cash dividend of US$0.0091/share, versus US$0.0181 last year; but still around 25% of its earnings.

Agriculture business continues to improve

While the Energy business was still the top performer in terms of revenue and tonnage in 4Q13, we note that its Agriculture segment has continued to improve, with its operating margin back at 0.7% (versus 0.3% in 3Q13 and -2.1% in 2Q13). Another surprising development was the strong rebound in its MMO business, with tonnage almost doubling QoQ to 16.4m tons in 4Q13; operating margin also jumped to 1.3% from 0.5% in 3Q13. Noble said the improvement was due to the broadening of its franchise away from its cargo by cargo trading roots and also buoyant showing by its Aluminium business.

Achieved cost savings of >US$100m

As before, management says it will continue to focus on long-term efficiency gains made from recent initiatives to reduce SAO and finance cost; this after achieving its targeted reduction in SAO and finance cost by >US$100m in 2013. Other strategies include being “Asset-Light”, having a “Strong Balance Sheet”, and “Best-in-Class Platforms”.

Maintain HOLD with S$1.03 FV

For now, we are largely keeping our FY14 estimates unchanged; although we expect better margin improvements in FY15. Our fair value remains at S$1.03, still based on 11x FY14F EPS. Maintain HOLD.

Source: OCBC Research - 24 Feb 2014