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Wednesday, January 9, 2013

Maybank-Kim Eng tips Noble as top pick for commodity traders


Maybank-Kim Eng upgrades Singapore’s commodity-trader segment to Overweight from Neutral; “these stocks have suffered both de-ratings and earnings declines in 2012, but we expect a healthy rebound this year as markets switch to a risk-on mode.”
It expects profit growth to adjust to a more-sustainable level. “While profit growth may not excite as much as it used to, we believe these commodity traders still play a very relevant role in the longer-term picture. These companies control commodity flows into Asia, which will demand increasingly more commodities as cities industrialise and population grows. China is now the main driver of global incremental demand, and this will likely have more legs to run.”
It expects strengthening balance sheets ahead as managements appear to be slowing capex spending. After 2012’s negative earnings surprises, it doesn’t expect a re-rating to previous heights short-term, especially with profit growth likely lacklustre for a few more quarters; “however, given such low valuations, we think it will be profitable to take an early position tactically.” Noble (N21.SG) is its preferred sector pick as the most-leveraged to China’s economic improvement and with the most-robust balance sheet.

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