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Noble to hold from OCBC

OCBC

Noble Group Ltd: Recent rally calls for caution

Summary: During its meeting with the investment community yesterday, Noble Group (Noble) reaffirmed its commitment to building the business over the medium to long term. Its strategies of connecting low-cost producers to high-growth markets, investing in stable revenue-generating assets and building critical mass in selected commodities remain intact. In addition, the group plans to leverage on its strong balance sheet to capture investment opportunities that may arise. We view value accretive investments positively; however, the group’s ongoing expansion may elevate its operating expenses, and this could weigh on its near term earnings. Despite its 2Q10 earnings falling short of expectations, Noble’s shares have appreciated by 20% since its result release, outperforming the STI’s 6% gain. We are turning cautious on the stock following its recent run-up. In our view, a strong set of 3Q10 earnings is required to justify further share price outperformance. We are keeping our S$1.97 fair value estimate intact, but trimming our rating to HOLD on valuation grounds. (Lee Wen Ching)

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