Lim & Tan Securities: Noble Group - 7 Apr 2008

Annual Report Review

• We are confident, after reviewing Noble’s 2007 annual report, that its share price will likely test its 2007 peak of $2.50 in the not-too-distant future, and then surpass it.


• In the Q&A with senior management (including Vice Chairman Harindarpal Banga), we learned that the 2006 target to “double top and bottom line within 5 years” has been restated with 2007 as the base line, since net profit had already surged 92% and revenue by 71% in 2007.
  


• It was also good to refresh oneself on the strengths of the company:
  - Noble has 33 financiers, including all the top names in world banking (BoA, BoC, Citigroup, JP Morgan, DBS, HSBC, StanChart, Bank of Tokyo Mitsubishi, Credit Suisse, Deutsche Bank etc);
  - an impressive board of directors, with the latest addition being Prof Kenneth Courtis, who was MD and Vice Chairman of Goldman Sachs Asia from 1999-2006. And before him, David Eldon, who retired as Chairman of HK & Shanghai Banking Corp in 2005 after 37 years with the HSBC Group.
  - Dividend policy of a cash payout of 25% of net earnings. This is significant for a high-growth company like Noble. See Exhibit 1.
  - Management’s guiding principle of “only interested in being highly competitive throughout a cycle, and not bet on a permanent commodity super-cycle washing away sloppy mistakes or pricey acquisitions”.


• Two other points are also worth reiterating:
  i. Noble raised S$209 mln last week to invest in the business. Given 2007’s 20.6% ROE, that should generate additional $40 mln profit. Olam, on the other hand raised S$307 mln to pay down its borrowings. Assuming 6% interest cost, that will save $18 mln in interest expense.
  ii. Institutional investors were eager to invest in 100 mln new shares at a price ($2.09) that was close to what 3 directors paid for nearly 6 mln shares ($1.7755 to $2.05 for $1.97 average) on the open market.


• We therefore continue to prefer Noble over Olam.