By Lee Wen Ching
Wed, 21 Apr 2010, 09:23:19 SGT

Having visited Noble Group’s (Noble) coal operations in Australia and soybean operations in Argentina, we remain positive on the group’s growth strategy. Noble is poised to leverage on rising coal markets via its stakes in Gloucester Coal and Donaldson Coal. Management is especially upbeat on coking coal, a product it believes to be structurally short owing to strong steel demand in China and India. The group recently expanded its soybean capabilities with a new oilseed processing complex in Argentina. It aims to double the size and triple the margins of its soybean operations by expanding in the processing market. Noble has multiple growth engines which will drive medium term earnings growth and we do not expect the recent fallout of the Macarthur deal to have significant impact on its prospects. We maintain our BUY rating and keep our S$3.75 fair value estimate intact.

Riding on bullish coal markets. We visited Noble Group’s (Noble) coal operations in Australia and soybean operations in Argentina last week, and remain positive on the group’s growth strategy. Noble is exposed to Australia’s coal industry via its 87.7% stake in Gloucester Coal, which mines coking and thermal coal, and a 100% stake in Donaldson Coal, which produces thermal and semi-soft coking coal. The outlook for coal remains bullish as strong demand from Asia and tight demand-supply fundamentals continue to drive prices higher. Management is especially upbeat on coking coal, a product which it believes to be structurally short owing to China’s and India’s insatiable appetite for steel. Its view is supported by Gloucester Coal’s recent update which cited a 100% YoY increase in coking coal prices. The group’s positive view on coking coal echoes what we believe is a unanimously bullish view of coking coal, as demonstrated by recent bids for Macarthur Coal as global energy players vie for a stake in the pulverised coal market.

Expanding its soybean capabilities. Noble recently expanded its downstream processing capabilities by opening an oilseed processing complex in Argentina. The complex is expected to process 2m MT of soybeans this year before expanding its capacity to 3m MT in 2012 and 5.4m MT in 2014. Prior to the establishment of this complex, Noble crushed its beans in China or sold soybeans to its customers who would then process them into soybean meal and soybean oil. With this complex, Noble aims to expand its presence in the processing market and capture better margins along the value chain. With its bountiful supply of soybeans and low cost of crushing, Argentina is the world’s largest supplier of soybean meal and soybean oil. Noble has identified growth opportunities in this market and targets to double the size and triple the margins of its soybean operations by expanding in this space.

Maintain BUY. Noble’s shareholders have voted against its proposed Macarthur deal, putting fears of a bidding war to rest. Noble’s decision to walk away from the bidding tussle will not have significant impact on its earnings growth. The group continues to have multiple growth engines intact as contributions from recent investments come on stream. We remain positive over Noble’s prospects and keep our earnings estimates and S$3.75 fair value estimate unchanged. We maintain our BUY rating on Noble.