Stiffer competition to pester Noble Group

This plus a greater aversion to risk will counter its rebound momentum, says DBS.

Operating margins across its key segments are also looking frail, which led the brokerage firm to cut its FY12-14F earnings forecast by a whopping 11-23%.

Here's more from DBS:

Energy dragged down earnings. Noble booked 4Q11 earnings of US$105.8m (-60% y-o-y). Excl. US$33.5m profit from Supply Chain assets, earnings came in at US$72.2m (from US$34.8m loss in 3Q11). While we did expect a recovery in earnings, operating profit from Energy was below due to production problems at Gloucester Coal which (1) experienced flooding in 3Q11 and was unable to recover lost volumes due to restrictions on rail haulage and (2) equipment issues at Donaldson. The segment was also hit by lower gas and power demand as a result of a mild US winter.

Agriculture performed rather well, considering peers' performance. We had expected FY operating profit of US$467m vs. actual of US$476.5m. We understand that China’s crushing business utilisation was low, but Noble had hedged part of its crushing operations in Timbues. Sugar also performed well, as it had locked in margins during a temporary rally in 4Q11. MMO business remained challenging. It booked operating margin of US$17.9m in 4Q11, which was below our US$23.3m estimate.

FY12-14F earnings cut by 11-23% after we imputed FY11 actual numbers and adjusted our operating margin/MT assumptions lower across the 3 main segments. We expect earnings recovery to be constrained by increased competition and reduction in Noble’s risk appetite. VAR (value at risk) has been cut from 0.86% in Feb11 to 0.35%in Dec11. In USD terms, our TP was cut by 11% to US$1.11. But, as we revised FY12F average USD/SGD rate to S$1.31 from S$1.25, this translated to S$1.45 TP. Maintain HOLD. Potential catalyst is regulatory approval for the merger of Gloucester Coal and Yanzhou scheduled for mid 2012.

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