Noble Group impresses analysts, clinches stock recommendation boost

Phillip Securities Research has upgraded the trading company's stock recommendation to a "Buy" in light of its 82% jump in revenue for 9M10 and recovery of its margins in the Agriculture segment.

In a statement, the research firm said Noble Group's 3Q10 revenue also increased by 79% y-y to US$14.9b. The increase in revenue was generally due to higher commodities prices and a shift in Group’s product mix with more contribution from higher priced energy products. YTD revenue of US$39.3b is ~81% of our previous FY10 revenue forecast.

Group gross profit for 9M10 and 3Q10 rose 35% and 40% y-y to US$1.1b and US$442.3m while gross margins fell to 2.8% in 9M10 (9M09: 3.7%) and 3.0% in 3Q10 (3Q09: 3.8%). Decline in gross margin was due to the shift in product mix, with more energy products, which generally have lower margins when compared to other commodities. Net profit was US$358m for 9M10 which is ~84% of our previous FY10 earnings forecast. Tonnage volume remained strong at 131.3m MT for 9M10. In particular, the Agriculture segment saw a significant increase of 47% to 17.0m MT for 9M10 (9M09: 11.6m MT).

SAO (aka SG&A) expenses totaled US$165.4m in 3Q10. SAO as a percentage of GP for 3Q10 has normalized back to 37.4% as compared to the jump of 63.6% in 2Q10 (average historical level of ~44%).

"Overall, Noble has performed above our expectation, particularly in the Agriculture segment. The increase in tonnage volume for Agriculture and recovery of its margins are positive for the Group. Though FY10 results, in our opinion are still likely to come in weaker as compared to FY09 due to a weaker 1H10. We are comforted with what we are seeing in this quarter and expect earnings growth to be stronger in FY11, as the global economy recovers coupled with the bulk of the Group’s new assets and business expansion becoming operational with full contributions then," Phillip Securities said.

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