4Q13 results largely in line with market expectations, with full-year core net profit shrinking 31.6% YoY.

More worrying is the current extreme drought in Brazil, which could heighten the risk of earnings miss and delay recovery in the agricultural sector.

Maintain HOLD with a lower TP of SGD1.04.

In-line 4Q13 results

Noble reported flat revenue for 4Q13 at USD24.4b but a 27.8% YoY increase in net profit to USD116.5m. The numbers were largely within market expectations. On a full-year basis, core net profit shrank by 31.6%, even after adjusting for the USD79m accounting loss from Yancoal Australia in 3Q. Margins-wise, the metals, minerals and ores (MMO) segment surprised on the upside while the energy division posted a slight miss. Full-year dividend per share was slashed by 50% to US 0.91cts from US 1.81cts last year.

Lower earnings forecasts and TP

Our base-case scenario assumes a sharp rebound (55.8% YoY) in FY14E core net profit mainly due to the low base effect. We expect a recovery in the agricultural sector to be the key earnings growth driver (estimated USD148.1m operating profit in FY14E vs USD83.0m operating loss in FY13).

However, the extreme drought Brazil is facing has become a cause of grave concern. Noble sources grains, coffee and other agri-commodities from this South American country and operates four sugar mills there with a total production capacity of 17.5m tons pa. The drought could adversely affect the production of crops like sugar and coffee and indirectly affect Noble’s soybean crushing business in Argentina. We see a higher risk of earnings miss in the next few quarters and a delay in earnings recovery to FY15E. We therefore lower our FY14E/15E core profit forecasts by 4%/3% and trim our TP to SGD1.04 (previously SGD1.07). Maintain HOLD.

Source: Maybank Kim Eng Research - 24 Feb 2014