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www.dbsvickers.com

Refer to important disclosures at the end of this reported: JS / sa: JC

HOLD S$1.59 STI : 2,927.04(Downgraded from Buy)

Price Target : 12-Month S$ 1.62 (Prev S$ 2.00)Reason for Report : Change in rec, TP and forecastsPotential Catalyst: -AnalystBen SANTOSO +65 6398 7976bensantoso@dbsvickers.com

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N o b le G ro u p ( L H S ) R ela t i v e S T I IN D E X ( R H S )

Forecasts and ValuationFY Dec (US$ m) 2009A 2010F 2011F 2012FTurnover 31,183 38,867 45,390 50,383EBITDA 722 792 999 1,198Pre-tax Profit 620 495 667 815Net Profit 556 426 567 692Net Pft (Pre Ex.) 430 426 567 692EPS (S cts) 19.8 9.8 13.0 15.9EPS Pre Ex. (S cts) 15.3 9.8 13.0 15.9EPS Gth Pre Ex (%) (37) (36) 33 22Diluted EPS (S cts) 19.8 9.8 13.0 15.9Net DPS (S cts) 3.8 2.4 3.3 4.0BV Per Share (S cts) 105.0 76.3 86.9 99.6PE (X) 8.0 16.2 12.2 10.0PE Pre Ex. (X) 10.4 16.2 12.2 10.0P/Cash Flow (X) 6.9 13.0 10.1 8.3EV/EBITDA (X) 9.9 12.3 10.2 8.6

Net Div Yield (%) 2.4 1.5 2.0 2.5P/Book Value (X) 1.5 2.1 1.8 1.6Net Debt/Equity (X) 0.9 0.8 0.8 0.8ROAE (%) 23.1 13.6 16.0 17.1

Earnings Rev (%): (25.4) (22.7) (18.5)Consensus EPS (S cts): 13.6 16.9 20.6ICB Industry :IndustrialsICB Sector: General IndustrialsPrincipal Business: Noble is a leading supply chain manager inagriculture, energy, metals, minerals and ores as well as logistics.The group's operations span from from South America to Australiaand China, serving 4,000+ customers.Source of all data: Company, DBS Vickers, Bloomberg

At A GlanceIssued Capital (m shrs) 6.004Mkt. Cap (S$m/US$m) 9,546 / 7,019Major Shareholders

Fleet Overseas NZ (%) 23.6Best Investment (%) 14.8Banga Harindarpal (%) 6.2

Free Float (%) 55.4Avg. Daily Vol.(000) 26,539

DBS Group Research . Equity 13 Aug 2010

Singapore Company Focus

Noble GroupBloomberg: NOBL SP | Reuters: NOBG.SI

Dismal 2Q10 results

2Q10 earnings plunged 65% y-o-y to US$86.6m below our and consensus expectations

Drop in agriculture gross profit and jump in opexcontributed to the weak performance

ROE guidance lowered to 15% from 20% on lowerrisk-free rate

FY10F-11F EPS cut by 23-25%, TP lowered to S$1.62.Downgraded to Hold

2Q10 earnings below expectations. Excluding US$38.7mfair value gain in Middlemount investment, 2Q10 earningsplunged to US$47.9m the lowest quarterly profit in 3 years.This comes as a result of 33.3% drop in agriculture segmentgross profit and a 69.1% jump in SG&A cost; while energyGPM was also lower than expected. Accordingly, 2Q10 netprofit came in below our and consensus expectations.

Drop in agriculture margin, jump in opex. While we hadanticipated a reduced Agriculture gross profit of US$391m,we understand that crushing margins were worse thanexpected due to higher levels of farmer retention, resulting in

occasionally negative margins in both China and Argentinaoperations. The group had also expensed larger portion ofstaff compensation costs, start up costs in Oil & Gas division,as well as office relocation expenses, and risk managementsystems.

Lowering ROE guidance. Noble has now guided for lowerROE of 15% from 20% previously, considering the drop in 5-year treasury rate. The group remains confident that it candouble its earnings in a few years time.

FY10F-11F EPS cut by 23-25%, downgraded to Hold. Onaccount of lower agriculture and energy contribution andhigher SG&A, we cut FY10F -11F EPS by 23-25%. Our DCF-

derived TP is also lowered to S$1.62 from S$2.00. While webelieve the market has already priced in the poor results,there remains little catalyst for the stock in the near term.

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HighlightsDismal 2Q10 resultsNoble booked 2Q10 net profit of US$86.6m (-65.2% y-o-y).This was substantially below our and consensus expectationson an annualised basis. While soybean crushing margins wereweaker and operating expenses increased as expected, theextent of the profit squeeze was worse than expected. Energysegment gross margin of 2% was also below ourexpectations (FY10F: 3.1%)

Sequentially, 2Q10 earnings declined by 24.8%, primarily dueto 41% jump in operating expenses. There was a US$38.7mfair value gain associated with the improvement in theunderlying commercial value of the Middlemount investment.

2Q10 revenue jumped by 80.1% y-o-y to US$12.9bn, mainlyon the back of 81.7% jump in implied ASP in energysegment, and 65.0% jump in implied ASP in MMO segment;while 2Q10 agriculture volume handled also jumped by38.5% to 5.4m MT - mainly representing jump in grains andsugar. Energy volumes rose by 9.4%.

2Q10 gross profit rose by 17.5% y-o-y to US$315m, themain contributors were Energy (US$163m; +34.7%),followed by Agriculture (US$76m: -33.3%), MMO (US$45m:from zero in 2Q09) and Logistics (US$31m; -6.1%). Overall,2Q10 gross margin declined to 2.4% from 3.7% in 2Q09due to lower crushing margins and higher proportion of low-

margin products in the energy segment.

Jump in operating expensesIn 2Q10, Noble expensed a larger portion of staffcompensation costs, start up costs in Oil & Gas division, aswell as office relocation expenses, and risk managementsystems.

Approximately half of the increase in operating expensesrelates to staff compensation cost at management discretion,especially in the groups Oil and Gas, Coal and Coke andSugar divisions. Provisions for staff costs do not reflect theirrespective profit contributions, which were seasonally lowerin 1H10. We understand that the groups Oil and Gasdivisions are due to contribute more profits in 4Q10.

Maintaining sufficient cash levelsNoble's 2Q10 ending cash level increased by 19.9% q-o-q toUS$1,049.2m mainly due to lower inventories and highershort term debts.

As at end of June 2010, Noble's total borrowings stood atUS$4,146.1m; while its net gearing (incl. MI) stood at104.1% - slightly higher than 86.2% at the end of the

previous quarter. If Readily Marketable Inventory (RMI) is

excluded, gross gearing as at end June would be 42.3%compared to 14.1% in March 2010 (incl. MI).

The group had spent c.US$274m on capex in 1H10(excluding associates and long-term investments) and isguiding for full year capex of c.US$500m. We are loweringour capex assumptions to US$570m for this year fromUS$740m.

Noble's estimated cash conversion cycle (rolling, last 4quarters based on changes in trade receivables, payables andinventories) shortened slightly to 5.0 days from 6.8 days in1Q10 - mainly due to drop in inventory days to 27 from 34,respectively.

Forecasts revisedWe have lowered the groups FY10F-11F gross profits by12.6% and 6.0%, to US$1,184.7m and US$1,527m,respectively; mainly on account of lower agriculture andenergy gross profit contribution, offset slightly by higherMMO and logistics contributions. We have also adjusted thegroups FY10F and FY11F operating expenses by 2% toreflect the 1H10 results.

On account of the above revisions, we cut FY10F -11F EPS by25-23%.

Improving outlook on the crushing marginsThe group expects a turnaround in 3Q and 4Q crushingmargins, although it is too early to say for certain.

We understand that the group plans to fully plant therecently acquired 32,500 ha land in Indonesias West Papuaover the next 3-4 years (approximately 7k ha has alreadybeen planted). Ideally, the group intends to develop close to100k ha over the next few years.

Noble remains in touch in CIC to develop a JV in theagriculture segment should an opportunity present itself. Thegroup would also look to invest A$434m proceeds from the

recent sale of Middlemount to Gloucester Coal.

TP and rating cutOur DCF-derived TP is now reduced to S$1.62 from S$2.00.While we believe the market has already priced in the poorresults, there remains little catalyst for the stock in the nearterm. Hence, we cut our call to Hold from Buy

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2Q10 results summary and comments% Chg % ChgFY Dec (US$m) 2Q09 1Q10 2Q10 YoY QoQ CommentsSales 7,174.1 11,401.1 12,917.3 80.1 13.3 Higher tonnage in Agri, higher ASP in energy & MMO

Cost of goods sold -6,906.1 -11,069.0 -12,602.7 82.5 13.9Gross profit 268.1 332.1 314.6 17.3 -5.3 Lower agriculture, flat logistics, offset by higher MMOSelling, administrative & op. exp. -118.4 -141.7 -200.2 69.1 41.3 Start up costs, office relocation, staff cost provisionsEBIT 149.7 190.5 114.4 -23.6 -39.9

Depreciation & amort. 9.9 49.5 3.9 -61.0 -92.2EBITDA 159.6 240.0 118.3 -25.9 -50.7Finance income 4.0 7.4 11.1 174.1 49.5

Finance costs -47.1 -68.7 -79.9 69.6 16.3 Higher debts issuance costs

Other income & gains net of other exp. 167.4 3.6 51.1 -69.5 1,320.6 Includes US$38.7m fair value gain in Middlemount

Share of profits & losses of

JV -0.2 -0.6 -0.5 NM NM

Associates -7.4 -2.9 0.6 NM NMProfit before tax 266.4 129.3 96.8 -63.7 -25.2Income tax -16.2 -14.1 -10.4 -35.7 -26.2

tax rate -6.1% -10.9% -10.7%

Profit for the year 250.2 115.2 86.4 -65.5 -25.1

Attributable to:Shareholders 248.8 115.0 86.6 -65.2 -24.8Minority interest 1.4 0.2 -0.2 NM NM

Profit for the year 250.2 115.2 86.4 -65.5 -25.1

Gross margin, % 3.7% 2.9% 2.4%

EBIT margin, % 2.1% 1.7% 0.9%

EBITDA margin, % 2.2% 2.1% 0.9%

Pretax margin, % 3.7% 1.1% 0.7%

Net margin, % 3.5% 1.0% 0.7% Source: Company, DBS Vickers

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DCF ValuationCost of debt WACC (%)Tax rate 15.0% Equity portion of capital 61.0%

Kd 5.4% Ke 15.9%

Debt portion of capital 39.0%

Cost of equity Kd 5.4%Risk free rate (Rf) 3.5% WACC 11.8%Market return rate (Rm) 10.0%

Beta () 1.9 Terminal valueRisk premium (Rm-Rf) 6.5% Implied perpetual growth rate 3.0%

Ke 15.9% Implied FY10F EBITDA multiple 8.7

Free cash flow (US$ m) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Operating profit 764.3 926.9 1,000.5 1,097.9 1,182.6 1,264.3 1,344.1 1,423.8 1,508.9 1,600.0

Tax -100.1 -122.2 -136.8 -157.0 -176.6 -193.7 -212.4 -231.9 -253.2 -278.7

Op. profit after tax 664.2 804.7 863.7 940.9 1,006.0 1,070.6 1,131.7 1,191.8 1,255.8 1,321.2Amortisation & depreciation 108.2 131.6 147.9 164.1 181.3 198.2 213.7 227.8 240.5 251.9

Gross cash flow 772.4 936.3 1,011.6 1,105.0 1,187.3 1,268.8 1,345.4 1,419.6 1,496.3 1,573.1Capital expenditures -584.3 -519.8 -437.7 -355.3 -331.7 -308.8 -287.1 -266.8 -248.0 -230.6

Incremental working capital 21.3 30.8 40.6 44.6 49.0 53.5 58.7 64.0 69.4 75.1Free cash flow 209.4 447.3 614.4 794.4 904.6 1,013.5 1,117.0 1,216.8 1,317.7 1,417.7growth 113.6% 37.3% 29.3% 13.9% 12.0% 10.2% 8.9% 8.3% 7.6%

PV of free cash flow 209.4 400.2 491.7 568.7 579.3 580.6 572.5 557.9 540.4 520.1

Total PV of free cash flow 5,020.7

PV of residual value 5,919.8

Corporate value 10,940.5

Ending cash 937.3

Shareholder value 7,324.5

Fair value/share (US$) 1.23

Fair value/share (S$) 1.62 Source: DBS Vickers estimates

2Q10 operational statistics

Source: Company

% ChgVolume (m MT) 2Q09 1Q10 2Q10 YoYAgriculture 3.9 4.7 5.4 38.5

q-o-q growth 18.2% 6.8% 14.9%contribution 9.0% 11.0% 12.3%

Energy 18.0 20.7 19.7 9.4

q-o-q growth -13.0% 1.0% -4.8%contribution 41.7% 48.3% 44.9%

MMO 6.2 4.4 6.4 3.2

q-o-q growth -20.5% -12.0% 45.5%

contribution 14.4% 10.3% 14.6%Logistics 15.1 13.1 12.4 -17.9

q-o-q growth -13.7% -22.9% -5.3%Total volume ex logistics 43.2 42.9 43.9 1.6q-o-q growth -12.4% -8.5% 2.3%

% ChgSegmental rev. (US$ m) 2Q09 1Q10 2Q10 YoYAgriculture 1,806.0 2,425.0 2,803.0 55.2

q-o-q growth 10.8% 12.6% 15.6%

contribution 25.2% 21.3% 21.7%

Energy 4,029.0 7,382.0 8,013.0 98.9

q-o-q growth 22.9% 19.1% 8.5%

contribution 56.2% 64.7% 62.0%

MMO 1,137.0 1,359.0 1,937.0 70.4

q-o-q growth 12.6% 26.9% 42.5%

contribution 15.8% 11.9% 15.0%

Logistics 202.0 225.0 174.0 -13.9

q-o-q growth 23.9% -23.5% -22.7%

contribution 2.8% 2.0% 1.3%

Total revenues 7,174.0 11,401.0 12,917.0 80.1q-o-q growth 18.0% 19.2% 13.3%

% ChgGross profit (US$ m) 2Q09 1Q10 2Q10 YoYAgriculture 114.0 96.0 76.0 -33.3

q-o-q growth 6.5% 124.3% -20.8%

contribution 42.5% 28.9% 24.1%

Energy 121.0 108.0 163.0 34.7

q-o-q growth 255.9% -47.0% 50.9%

contribution 45.1% 32.5% 51.7%

MMO 0.0 74.0 45.0 NMq-o-q growth NM 26.5% -39.2%

contribution 0.0% 22.3% 14.3%

Logistics 33.0 54.0 31.0 -6.1

q-o-q growth -45.0% 0.2% -42.6%

contribution 12.3% 16.3% 9.8%

Total gross profit 268.0 332.0 315.0 17.5q-o-q growth 20.2% 10.7% -5.1%

% ChgImplied ASP/MT (US$) 2Q09 1Q10 2Q10 YoYAgriculture 463.1 516.0 519.1 12.1

q-o-q growth -6.2% 5.4% 0.6%

Energy 223.8 356.6 406.8 81.7q-o-q growth 41.3% 18.0% 14.1%

MMO 183.4 308.9 302.7 65.0q-o-q growth 41.6% 44.2% -2.0%

Logistics 13.4 17.2 14.0 4.9q-o-q growth 43.6% -0.7% -18.3%

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Income Statement (US$ m) Balance Sheet (US$ m)FY Dec 2009A 2010F 2011F 2012F FY Dec 2009A 2010F 2011F 2012FTurnover 31,183 38,867 45,390 50,383 Net Fixed Assets 1,523 2,112 2,550 2,900Cost of Goods Sold (30,078) (37,683) (43,863) (48,533) Invts in Associates & JVs 138 149 165 186Gross Profit 1,105 1,185 1,527 1,850 Other LT Assets 486 488 491 495Other Opng (Exp)/Inc (423) (592) (763) (923) Cash & ST Invts 937 1,430 887 643Operating Profit 682 592 764 927 Inventory 3,415 3,240 3,733 4,089Other Non Opg (Exp)/Inc (1) 132 138 145 Debtors 1,141 1,291 1,508 1,674Associates & JV Inc (25) (18) (12) (6) Other Current Assets 3,016 3,815 4,288 4,650Net Interest (Exp)/Inc (163) (210) (223) (252) Total Assets 10,655 12,525 13,621 14,636Exceptional Gain/(Loss) 126 0 0 0Pre-tax Profit 620 495 667 815 ST Debt 609 109 109 109Tax (65) (69) (100) (122) Other Current Liab 3,937 4,788 5,536 6,103Minority Interest 1 0 0 0 LT Debt 2,932 4,082 3,969 3,867Preference Dividend 0 0 0 0 Other LT Liabilities 139 139 139 139Net Profit 556 426 567 692 Shareholders Equity 2,955 3,325 3,785 4,336Net Profit before Except. 430 426 567 692 Minority Interests 83 83 83 83EBITDA 722 792 999 1,198 Total Cap. & Liab. 10,655 12,525 13,621 14,636Sales Gth (%) (13.6) 24.6 16.8 11.0 Non-Cash Wkg. Capital 3,634 3,558 3,993 4,310EBITDA Gth (%) (21.6) 9.7 26.1 20.0 Net Cash/(Debt) (2,604) (2,761) (3,191) (3,333)Opg Profit Gth (%) (12.5) (13.2) 29.0 21.3Net Profit Gth (%) (3.7) (23.4) 33.1 22.1Effective Tax Rate (%) 10.5 14.0 15.0 15.0Cash Flow Statement (US$ m) Rates & RatioFY Dec 2009A 2010F 2011F 2012F FY Dec 2009A 2010F 2011F 2012FPre-Tax Profit 620 495 667 815 Gross Margins (%) 3.5 3.0 3.4 3.7Dep. & Amort. 67 89 112 137 Opg Profit Margin (%) 2.2 1.5 1.7 1.8Tax Paid (65) (69) (100) (122) Net Profit Margin (%) 1.8 1.1 1.2 1.4Assoc. & JV Inc/(loss) 25 18 12 6 ROAE (%) 23.1 13.6 16.0 17.1Chg in Wkg.Cap. (1,760) 871 21 31 ROA (%) 5.9 3.7 4.3 4.9Other Operating CF 443 (798) (460) (353) ROCE (%) 10.8 7.0 8.2 9.5Net Operating CF (670) 607 253 512 Div Payout Ratio (%) 19.3 25.0 25.0 25.0Capital Exp.(net) (690) (570) (546) (482) Net Interest Cover (x) 4.2 2.8 3.4 3.7Other Invts.(net) (15) (10) (11) (11) Asset Turnover (x) 3.3 3.4 3.5 3.6Invts in Assoc. & JV (31) (29) (28) (27) Debtors Turn (avg days) 12.1 11.4 11.3 11.5Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 43.3 39.2 40.3 41.2Other Investing CF (443) 0 0 0 Inventory Turn (avg days) 31.4 32.3 29.1 29.5Net Investing CF (1,178) (610) (584) (520) Current Ratio (x) 1.9 2.0 1.8 1.8Div Paid (146) (138) (107) (142) Quick Ratio (x) 0.5 0.6 0.4 0.4Chg in Gross Debt 985 650 (113) (102) Net Debt/Equity (X) 0.9 0.8 0.8 0.8Capital Issues 694 82 0 0 Net Debt/Equity ex MI (X) 0.9 0.8 0.8 0.8Other Financing CF (66) (97) 8 7 Capex to Debt (%) 19.5 13.6 13.4 12.1

Net Financing CF 1,467 496 (212) (237) Z-Score (X) 4.8 4.5 4.7 4.8Net Cashflow (381) 493 (543) (244) N. Cash/(Debt)PS (US cts.) (67.7) (46.4) (53.7) (56.0)

Opg CFPS (US cts.) 28.4 (4.4) 3.9 8.1Free CFPS (US cts.) (35.4) 0.6 (4.9) 0.5Quarterly / Interim Income Statement (US$ m) Segmental Breakdown / Key Assumptions

FY Dec 3Q2009 4Q2009 1Q2010 2Q2010 FY Dec 2009A 2010F 2011F 2012FTurnover 8,361 9,567 11,401 12,917 Revenues (US$ m)Cost of Goods Sold (8,046) (9,267) (11,069) (12,603) Agriculture 7,367 8,796 10,372 11,328Gross Profit 315 300 332 315 Energy 18,206 24,312 28,207 31,174Other Oper. (Exp)/Inc (117) (123) (142) (200) MMO 4,726 4,904 5,866 6,841Operating Profit 197 177 190 114 Logistics 884 855 944 1,040Other Non Opg (Exp)/Inc 11 (27) 31 79Associates & JV Inc (4) (6) (3) 0 Total 31,183 38,867 45,390 50,383Net Interest (Exp)/Inc (54) (17) (61) (69) Gross Profit (US$ m)Exceptional Gain/(Loss) 0 (28) (28) (28) Agriculture 344 306 523 712Pre-tax Profit 151 99 129 97 Energy 449 551 648 728Tax (19) (16) (14) (10) MMO 136 157 167 202Minority Interest 0 2 0 0 Logistics 177 171 189 208Net Profit 132 85 115 87Net rofit bef Exce t. 132 113 143 114 Total 1,105 1,185 1,527 1,850EBITDA 242 207 268 197 Gross Profit Margins (%)

Agriculture 4.7 3.5 5.0 6.3Sales Gth (%) 16.5 14.4 19.2 13.3 Energy 2.5 2.3 2.3 2.3EBITDA Gth (%) 46.5 (14.6) 29.4 (26.4) MMO 2.9 3.2 2.9 3.0Opg Profit Gth (%) 31.9 (10.4) 7.7 (39.9) Logistics 20.0 20.0 20.0 20.0Net Profit Gth (%) (46.9) (35.8) 35.6 (24.8)Gross Margins (%) 3.8 3.1 2.9 2.4 Total 3.5 3.0 3.4 3.7Opg Profit Margins (%) 2.4 1.8 1.7 0.9 Key AssumptionsNet Profit Margins (%) 1.6 0.9 1.0 0.7 Agriculture gross profit/MT, 21.5 15.0 21.8 27.7

Energy gross profit/MT, US$ 6.2 6.4 6.8 7.3MMO gross profit/MT, US$ 4.0 5.5 5.6 5.6Logistics gross profit/MT, 2.7 2.5 2.6 2.7Vol. growth (ex-logistics), % 27.4 13.1 8.6 7.5

Source: Company, DBS Vickers

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