• 1H earnings met 46% of FY forecast
• Making partnerships work
• Maintain HOLD and S$1.31 FV

1H14 results within forecast

Noble Group (Noble) reported its 2Q14 results last evening, with revenue up 13% YoY and 31% QoQ to US$23552.2m, as it continued to register record tonnage shipped (72.3m tons versus 52.2m in 1Q14 and 57.7m in 2Q13. However, profitability was lower, as overall operating margin eased to 1.1% from 2.2% in 2Q14 and 1.4% in 2Q13. As a result, profit from continuing operations fell 48% YoY and 53% QoQ to US$109.5m; net profit came in around US$65.8m, +5% YoY (down 57% QoQ). Nevertheless, 1H14 revenue grew 3% to US$41508.4m, meeting 41% of our full-year forecast, while net profit jumped 110% to US$218.1m, or 46% of our FY14 estimate, which we deem to be in line.

Drag came from MMO, Energy margins

More on the reduced profitability - we note that the drag came from the Metals, Minerals and Ores (MMO) business where operating margin (OM) slipped from 2.4% in 1Q14 (1.2% in 2Q13) to 1.0% in the quarter. Energy segment also saw OM easing from 2.9% in 1Q14 (2.1% in 2Q13) to 1.4%. But Agriculture division came close to breaking even versus -1.3% in 1Q14 (0.3% in 2Q13), with the majority of the Softs division showing a solid performance, although the coffee business was affected by the continued price volatility.

Recent developments worth watching

Recently on 14 Jul, Noble and EIG Global Energy formed a company (Harbour Energy) to own and operate upstream and midstream energy assets globally. While details remain scant, we understand that Noble will be the preferred off-take and market partner of the JV, while EIG will serve as manager of the company and oversee asset acquisitions. Separately, Noble raised some US$400m via perpetual securities, which should put the company in a very good shape to look at M&As and also expand its existing logistics business.

No change to FV for now

As results were largely in line, we opt not to adjust our estimates, including our S$1.31 fair value (still based on 13.5x blended FY14F/15F EPS). Maintain HOLD as well and we would be remain buyers closer to S$1.30 or better.

Source: OCBC Research - 8 Aug 2014