Noble’s net profit plunges 31.2% to US$139.8m

Muted 2Q11 showing. Noble Group saw its 2Q11 revenue surging 52.5% YoY to US$19,697m, but it fell 1.6% QoQ. Gross profit also showed a similar pattern, increasing 32.1% YoY but fell 3.8% QoQ to US$438.8m. More notably, gross margin was lower at 2.2% in 2Q11, down from 2.3% in 1Q11 and 2.4% in 2Q10. Reported net profit climbed 62.3% YoY, down 31.2% QoQ, to US$139.8m; excluding US$34m remeasurement gain, core net profit was US$105.8m. 1H11 revenue grew by 63.3% to US$39,719m, meeting 51.8% of our original FY11 forecast. Reported net profit grew 70.7% to US$343.0m; estimated core net profit came in at US$309.0m, meeting just 31.3% of full-year estimate.

Weaker Energy business in 2Q11. Energy business saw both a 13.6% QoQ drop in volume to 24.0m tonnes and also a 19.3% decline in revenue to US$11,621m. Noble explained that the softer quarterly performance was mainly due to the supply chain disruptions for metallurgical coal emanating from issues following the Japanese tsunami in Mar, especially after very strong demand in 1Q11. Agriculture division revenue rose 65.0% QoQ to US$5,308m, while shipment also grew 19.4% to 11.1m tonnes. MMO (Metals, Minerals and Ores) revenue was up 15.3% QoQ to US$2,768m, but volume eased 2.3% to 12.7m tonnes; this mainly due to lower China imports as China increased domestic production of minerals, which also impacted margins.

Outlook likely to remain challenging. Given the increased risk of another slowdown in the global economy, led by the US, which could also potentially affect China, we believe that the outlook for the global commodity market is likely to remain challenging; especially for hard commodities like industrial metals. And with the recent decline in crude oil prices on heightened worries over slowing demand, we expect this to also weigh on energy prices. We note that Australian thermal coal prices are currently at around 9% and below its Jan 2011 peak of US$141.9/ton. On the other hand, Agriculture commodities should remain flat, as food items are likely to hold out or even push higher as people are not expected to cut spending on essential items; but commodities like rubber and cotton are likely to fall should people cut discretionary spending.