As a result of tightening industrial demand and personal consumption globally most of Noble’s business divisions will be under pressure going forward. Consequently we expect FY09CL earnings to fall 64% YoY with the risk on the negative for Street downgrades. Trading at 13.7x FY09 earnings compared to 10x for peers, our DCF and peer valuation based target price of S$0.70 implies 33% downside. Maintain SELL.

Demand contraction in the West and the resultant cut back in production in Asia spells significant headwinds for Noble’s metals, mining and energy divisions. While long term demand drivers for Noble’s higher margin agribusiness remains intact, near term pullback on discretionary commodity consumption is a concern. Separately, we do not believe the announced pump-priming efforts globally will be sufficient to offset falls in private consumption. Expect FY09 Group volumes to fall 16% YoY and earning 64%.

Noble has been pursuing an asset medium strategy over the past few years resulting in a transformation from a supplier to a producer especially in the energy and mining space. We believe this is a necessary step to ensure security of supply, especially in a backdrop of strong global mining M&A activity in 2006 and 2007. But this exposes Noble to higher price volatility. Similarly, we argue the departure from a pure supply chain manager to a producer must be adequately reflected in valuations.

Historically, the Group’s logistics sector’s gross profit has not been correlated to the BDI. Management claims that it is the movements in the sub-indices especially for charter-out rates for Panamax and Capesize that drive profit. In addition, the Group also profits from pricing anomalies in the freight futures market, further weakening correlation with the BDI. As a result, we believe positive movements in the BDI should not be seen as a catalyst for the stock.

Noble is trading at 13.7x FY09 earnings vs. 10x for peers. This is also a 62% premium to its long term average PE. Assuming Noble is not a cyclical play and FY09 earnings contract in-line with the Singapore market (-36% YoY), this implies a PE of 8x; expensive considering a 1.8% yield. Our DCF and peer valuations based target price of S$0.70 implies 33% downside. SELL.