How Noble could milk gains from its potential JV with China's COFCO

Don't get too excited yet, warns analyst.

According to Maybank Kim Eng, Noble’s shares rose strongly last week on speculation that the company was in talks with a consortium about forming a joint venture (JV) in agri-business. While this could bring a powerful
partner into the business, it is still unclear whether the structure and valuation of the proposed JV would be in favour of Noble.

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Media reports have named China’s COFCO as the potential JV partner. If the talks come to fruition, the deal could prove strategically positive for both Noble and COFCO, in particular the latter as it can further expand its overseas reach following its recent stake purchase in Dutch grain trader Nidera.

In the meantime, we will not get too excited about the JV until there is greater clarity on its structure. In our view, any asset sale at this juncture by Noble would not benefit shareholders given the current low valuation.

Our view

Noble is no stranger to China. China Investment Corp (CIC) has been a strategic investor since 2009 with a 14% stake. If the talks with COFCO come to fruition, the deal could prove positive for both parties, but perhaps more critical for COFCO in our view.

For Noble, the partnership could bring it a big customer. For COFCO, the transaction would not only allow it to leverage on Noble’s strong overseas sourcing and processing capabilities, especially in oilseeds, grains and sugar, but also gain access to the latter’s logistics infrastructure, such as warehouses, railways and ports.

This deal would represent COFCO’s second big move after its recent acquisition of a 51% stake in Nidera. 

Nevertheless, we will not get too excited about the potential JV until there is greater clarity on the structure of the partnership. 

In our view, any asset sale at this juncture by Noble would not benefit shareholders because after last year’s underperformance in the agriculture division (USD83m operating loss in FY13), valuation has hit a trough.

We expect Noble’s agriculture business to take a turn for the better in FY14 and do not think selling agri assets now is wise.

Management, too, has hinted at an analyst meeting last week that the company is unwilling to sell any of its agri assets while the JV structure is as yet unclear. A JV based on asset injections by both parties will be fairer to Noble’s shareholders, in our view.

But it remains to be seen which assets are injected and the final shareholding split between the two parties.