Noble Group Ltd - 3Q15 miss on associate losses; CFO change raises uncertainty

Noble reported a weaker-than-expected 3Q15 net profit of US$25 mn (down 84% YoY), as associates remained a drag and the Mining and Metals division reported a wider loss. Thus, 9M15 net profit of US$194 mn achieved only 48% of consensus' FY15 forecast.

Mining and Metals swung into an operating loss of US$44 mn in 3Q15 from a profit of US$65 mn in 3Q14, driven by weak demand for non-ferrous metals. Associates reported a loss of US$62 mn in 3Q15, due to losses at Noble Agri with the sharp fall in sugar prices. However, management expects Noble Agri to perform better in 2016 with the recent increase in sugar prices.

Robert van der Zalm will be stepping down as Group CFO following a recent health-related leave of absence, and will be taking on the non-executive role of Vice Chairman of Finance. Paul Jackaman, who joined Noble in 2014 as Asia Pacific CFO, will take on the role of Acting Group CFO.

We expect associates to remain a drag to earnings with weak coal prices, and reduce our 2015-17E EPS by 42-47%. Our target price falls to S$0.50 (from S$1), based on 0.5x P/B. Maintain NEUTRAL.

3Q15 below expectations due to drag from associates
Noble reported a 9M15 net profit of US$194 mn, representing just 48% of consensus' FY15 forecast. The Mining and Metals division was a drag to gross profit, while Energy and Gas and Power performed in line. Its profit was further impacted by a US$62 mn loss from associates, which was driven by losses at Noble Agri with the sharp fall in sugar prices and weak harvesting results. However, management noted that with the increase in sugar prices since the start of 4Q15, Noble Agri should deliver a stronger performance in 2016. Net gearing remained steady at 0.83x in September 2015, as Noble generated a positive net cash flow from operations of US$318 mn in 3Q15.

Mining and Metals posts a wider loss
Mining and Metals swung into a wider operating loss of US$44 mn in 3Q15 from a loss of US$19 mn in 2Q15 and a profit of US$65 mn in 3Q14. This was driven by weak demand for non-ferrous metals including zinc, copper and lead, which led to a decline in prices and premiums. In addition, aluminium spot premiums continued to fall in 3Q15, with the US Mid-west spot premium declining 22% QoQ. There was also some negative effect as working capital allocated to the Mining and Metals division was reduced.

Energy gross profit of US$200 mn in 3Q15 was an increase from US$58 mn in 3Q14, but down slightly from US$221 mn in 2Q15. Within Energy, Oil Liquids continued its strong performance with volumes increasing 36% YoY, and gross profit rising 92% YoY. Energy Coal saw a 14% YoY increase in volume and 15% YoY increase in gross profit. Gas and Power performed well with 3Q15 gross profit of US$96 mn, as Noble Americas Energy Solution (NAES) is tracking slightly above its 2015 plan.

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CFO change raises uncertainty
Separately, Noble announced that Robert van der Zalm will be stepping down as Group CFO and take on the role of Vice Chairman of Finance. According to Noble, he recently took a health-related leave of absence, and has decided to relocate back to Europe to be with his family. In his new non-executive capacity, he will mentor the finance team. Pack Jackaman, CFO Asia, will take on the role of Acting Group CFO. He joined Noble in 2014 as Asia Pacific CFO. (Read Report)

Read Related Reports
1) Noble Group - Confidence shaken by DBS Group Research, published on 13 November 2015

2) Noble Group Ltd - HOLD with new S$0.54 FV? by OCBC Investment Research, published on 13 November 2015

Source : Credit Suisse Asia Pacific Equity Research

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