The worst is yet to come for beleaguered Noble Group

Short-term earnings will miss market expectations.

The worst may be yet to come for embattled commodities trader Noble Group.

Maybank Kim Eng analyst Wei Bin noted in a report that Noble's earnings could be under greater pressure in the near term due to low commodity prices, potential impairment of upstream assets, and more conservative earnings recognition by the group.

"We think the concerns are valid. Short-term earnings are likely to miss market expectations due to lower trading margins, potential further asset impairments and more conservative revenue recognition after Iceberg’s and Muddy Waters’ allegations. S&P’s recent downgrade of Noble’s outlook from ‘stable’ to ‘negative’ also raised the spectre of an eventual credit-rating downgrade," Wei said.

Wei also warned that the group faces more operational challenges at present than during the Global Financial Crisis.

“Noble is trading at 0.6x FY16 P/BV, near its 0.5x bottom during GFC. However, unlike that period when the Chinese government stimulated its economy with a CNY4t infrastructure-investment plan which boosted demand for commodities, we think Noble faces more challenges now. Chinese demand is down and its interest expense could potentially rise with a credit-rating downgrade potentially on the cards,” he noted.