• No dividend for FY15
• Overall outlook still muted
• Lower FV of S$0.39

FY15 earnings below forecast

Noble Group, as guided, recorded a loss for FY15; this after making impairments against its investments (mainly coal) and its other supply chain assets. Reported PATMI came in at a loss of US$1672.0m, which included an exceptional loss of US$1915m. On an adjusted basis, net profit would have been around US$244.2m, but still down 57% and also about 12% below our forecast. Besides lower commodity prices, which resulted in FY15 revenue dropping 22% to US$66712.4m, management also highlighted that the strong Energy business was offset of losses in its Metals & Mining segment. Noble did not declare any dividend this year (versus 1 US cent for FY14).

Weak Metals & Mining a recurring theme

As with the first 9M, the main drag on earnings came from the Metals & Mining segment, which saw EBIT loss blow out to US$175m in 4Q15, bringing its full-year EBIT loss to US$229m. Given the extreme weakness in some areas of base metal, Noble has taken "aggressive steps" to shrink its balance sheet, footprint and headcount in this segment; Noble intends to just focus on its global vertically integrated supply chain for Alumina and its customer franchise in Asia.

Energy business still a bright spark

On the other hand, Noble's Energy segment continues to do well in 4Q15, with shipments up 24% YoY and EBIT up 17%, despite the 34% drop in revenue.; this mainly due to lower energy prices. And with the oil market still undergoing some key structural changes, Noble believes that it will continue to provide an "opportunity-rich" environment for trading companies like itself to help with market rebalancing. And despite the impairments to its long-term coal contracts, Noble believes that its business remains strong and is positioned for further growth.

No catalyst on the horizon

Given the sputtering economic outlook globally and the still-bearish outlook for commodities in 1H16, chances are that we could see more nearterm pain before things get better. We have also opted to pare our FY16 estimates by 19-24%; this in turn lowers our fair value from S$0.44 to S$0.39. Maintain HOLD.

Source: OCBC Research - 26 Feb 2016