Event
Noble’s headline numbers for 2Q10 were disappointing, dragging
down its performance for 1H10. Looking past the numbers, we would
say that its fundamental growth trajectory was still intact. We are
confident that factors, which have hitherto weighed on performance,
will reverse course over the next few quarters. Maintain BUY.
Our View
Revenue surged by 83% yoy in 1H10, thanks largely to the shift in
revenue mix to include the higher‐priced oil and gas products. As a
result, gross profit margins declined from 3.7% to 2.7%. Gross profit,
which is more reflective of the underlying profitability, was up 32%
while adjusted net profit shrank by 12%.
Gross profit growth would have been stronger if soybean margins at
its Chinese operations did not crash, exacerbated by the tight supply
from its South American sourcing. The oil and gas division registered
weaker gross profits due to the difficult trading environment.
However, we expect these situations to improve over time.
In our view, the astronomical increase in the selling, administrative
and operating (SAO) expenses was the single item which surprised
the most on the downside. Spending shot up by 87% to US$159m and
was attributed to start‐up costs for business expansion. Management
expects the SAO expenses to decline to a level more in line with the
historical average of 44% of gross profits in the future.
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