• Turnaround in Agri business
• Recent selling likely overdone
• Upgrade to BUY with S$1.31 FV

Better showing in 3Q14

Noble Group (Noble) reported its 3Q14 results, with climbing 6.9% to US$23314.0m, again driven by near-record shipment (71.6m tons versus 72.3m tons in 2Q14, 54.0m tons in 3Q13). And with its Agri segment returning to profitability in the quarter, Noble posted a net profit of US$153.9m, versus US$22.9m in 3Q13; although it included a gain on supply chain asset of US$81.8m (which also includes disposal gain of US$254m on its 51% stake to Cofco, but offset by losses in its mining assets). 9M14 revenue was up 4% at US$64822.4m, meeting 64% of our full-year forecast, while net profit jumped 193% to US$127.0m, meeting 79% of our forecast. Noble also declared a special dividend of US$0.03.share.

Turnaround in Agri business

In the quarter, the Agri business posted an operating income of US$79m, versus losses of US$0.3m in 2Q14 and US$42m in 1Q14; this mainly due to better performance from its Grains & Oilseeds division, which saw some recovery in crushing margins in both China and South America. For its Energy segment, operating profit dipped 16% YoY to US$285m, reflecting lower coal prices. MMO segment recorded a 57% jump in operating profit to US$33m, thanks to continued success in expanding its non-ferrous metal business, especially its alumina and aluminium businesses.

Recent drop in share price likely overdone

Separately, Noble’s share price saw a sell-off recently. The first was sparked by news that key shareholder CIC has reduced its stake from nearly 15% to 10% by selling 300m shares at S$1.32 each. The second happened in late Oct, where the share fell some 6.3% without any plausible reason, although market watchers believe it could be due to the Brazilian election results. Nevertheless, the latest 3Q14 results as well as the slightly more upbeat outlook suggest that the selling is likely overdone.

Upgrade to BUY with S$1.31 fair value

While we are opting to leave our estimates unchanged for now, and our fair value also remains at S$1.31 (based on 13.5x FY14/FY15F EPS), we are upgrading our call from Hold to BUY.

Source: OCBC Research - 10 Nov 2014