Is there some silver lining in Noble's worse-than-expected 2Q results?

Brightspots seen in Brazil operation but challenges remain.

Noble’s 2Q13 results were weaker than we expected, with PATMI tumbling 68% y-o-y to USD63m blamed on weakness in the agri segment, which saw back-to-back losses following a 1Q13 loss.

Analysts expect the weakness to persist in the short term.

Here are their thoughts:

Joshua Low, analyst OSK-DMG

In the recent quarters, the company’s earnings momentum has slowed from its historical run-rates of above USD100m, and may stay subdued on continued weakness in the agri segment. Agri may still see short term weakness.

We see some bright spots in the company’s new oilseed crushing plants in Ukraine, South Africa and Brazil, which are expected to be ready by 4Q13. However, we believe the full impact of these new plants will only be felt in 2014.

The energy segment continued to report strong performance, chalking up a 12% y-o-y rise in 2Q13 operating income from supply chain to USD351m on the back of robust performance from energy coal and continued expansion in the oil & gas division.

HO Pei Hwa, analyst DBS Vickers

Noble’s sugar mill operations in Brazil are poised to recover significantly as we enter the peak season in 3Q, aided by higher ethanol production and prices. The recovery in sugar prices plays a critical role. The current price at 16-17 UScents/pound is not sustainable as even the first quartile sugar mills are barely profitable.

Carey Wong, analyst, OCBC Investment Research

No doubt the second half tends to be seasonally stronger; but we suspect that its Agriculture segment could continue to be a drag on its overall profitability. As such, we see the need to sharply reduce our FY13 earnings forecast by as much as43% (FY14 by 18%); the group’s targeted cost savings will probably have a more meaningful impact in FY14. Meanwhile, Noble intends to continue with its “asset lighter” strategy, despite the sale of its Papua palm oil plantation to Wilmar International falling through.

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