Noble

Noble: Following three damning reports by Iceberg Research on the commodities trader recently, Noble Group received another setback today, after renowned short-seller, Muddy Waters, issued a Sell report on the company, stopping short of giving any target price.

Key allegations raised by Muddy Waters:
1) Noble seems to exist solely to borrow and burn cash: The group has been cash flow positive only four out of the last 20 years, having raised close to $7.7b from banks and the markets since 1997. Muddy Waters is puzzled why the company is still unable to stop burning cash even after a 20-year runway, adding that Noble’s growth is a means to no end, other than to keep credit flowing.

2) Noble depends on its income statement to survive: Muddy Waters question investors on how much should they trust Noble’s management to be straight with them, given that the commodities trader is such a complex and opaque company, citing previous examples that were featured in Iceberg Research reports regarding opaque transactions.

3) Third party behavioural analysis: Muddy Water's engaged a third party, Qverity, to conduct a behavioural analysis on Noble's management on its 4Q14 results conference call. Qverity is founded and staffed by former US CIA experts in detecting deception. Its opinion is that Noble management has been deceptive in addressing the criticism.

Overall, Maybank-KE opines that there is nothing really new in Muddy Water's allegation, while we do not have comments on the behavioural analysis by Qverity, given that we are not experts in this field.

Maybank-KE currently have a Hold rating on Noble with TP $0.96. While valuations are undemanding at 8.3x forward P/E and 0.9x P/B, the house would prefer to wait and see how management react to this latest short-selling report.

Wilmar is still Maybank-KE’s most preferred pick in the sector as we believe it will benefit from soybean crushing improvement and sugar price rebound.