• FY11F earnings boost to come from Berau, sugar, oil & gas, and a strong rebound in carbon credit. Hedged soy crush to maintain agriculture margins
• Japan quake: minimal impact on Noble’s coking coal; no change to thermal demand on nuclear incident
• Capital recycling, spin off to fund further expansion
• FY11F-13F EPS adjusted by -4 –+1%, TP maintained at S$2.60 (DCF-based). Buy call reiterated

Strong FY11F. We reiterate our positive view on Noble.
FY11F earnings growth to come from agriculture and energy: Berau contribution, higher Gloucester Coal (GCL) volumes, contributions from existing and soon-to-be acquired sugar refineries, oil & gas ramp up, and a strong rebound in carbon credit prices. While strong 4Q10 agriculture margins may be a one-off, we do not expect any sudden turn, as we understand Noble has hedged soy crush margins this year.

Minimal impact from Japan earthquake.
Damage to Japanese nuclear reactors and some steel mill closures following the 11 Mar11 earthquake should have a minimal impact on Noble – assuming Chinese, Korean and Southern Japanese steel mills take-up any shortfall from affected mills on reduced power supply. While we expect rebuilding efforts to eventually increase steel demand; this should only take place longer term. No meaningful impact on thermal coal demand is expected, as we understand peak-load plants in Japan are mostly oil-fired. While the disaster may provoke a rethink on future nuclear power generation, there is no evidence as yet of a concerted global switch to thermal-coal plants.

Capital recycling options.
Noble currently has several options: inject Donaldson into GCL and revalue NCIG stake and/or repackage its port ownership globally. Proceeds may be employed to fund expansion in both its US oil & gas division and agriculture segment (itself potentially spun off).

Maintain Buy.
We adjusted FY11F-13F EPS by -4 – +1%, imputing FY10 results and changes in GCL forecasts. Buy call is reiterated on 27% upside to S$2.60 TP (unchanged).