• 1Q met 17% of full-year estimates
• Likely to keep running a lean ship
• Lower FV of S$0.34

Slow start to 1Q16

Noble Group's 1Q16 revenue slipped 32% YoY to US$11,393.2m, meeting just 17% of our fullyear forecast; besides lower commodity prices, Noble also shipped 13% less tonnage through its network. Reported net profit tumbled 62% to US$40.5m, also about 17% of our FY16 estimate, as margins were also lower - gross profit was down 40% in the quarter.

But achieved profitability in all segments

Weaker volumes notwithstanding, Noble notes that all major segments have returned to profitability, including Metals & Mining (M&M). Recall that Noble had previously taken "aggressive steps" to shrink its balance sheet, footprint and headcount in this segment; and this has resulted in the M&M turning in a EBIT of US$7m, although still down 87% YoY, it was a strong turnaround from the US$160m loss in 4Q15.

Focused on improving liquidity

Going forward, Noble intends to continue to focus on improving its liquidity; this by redeploying capital employed from low-return businesses, the sale of non-core assets, and other capital raising initiatives. Management believes these new measures will generate over USS$1b of liquidity by end 2016, which it will reallocate to high-return businesses, like expanding its physical franchise in China for oil liquids; and to further reduce net debt (with a net debt/capitalisation of 45%). Noble adds that it has so far completed US$1.0b of committed unsecured revolving loan facility and a US$2.0b US Borrowing Base Facility.

Reducing FV to S$0.34

With Noble likely to continue running a pretty lean ship from here, we opt to pare our FY16 revenue estimate by 19% and earnings by 11%; this in turn reduces our fair value from S$0.39 to S$0.34, still based on a conservative 7.5x FY16F EPS. For now, we retain our HOLD rating, given the still muted outlook for commodities demand in general.

Source: OCBC Research - 13 May 2016