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Bank Muscat

Source: Taib Bank

Quarterly Result Update

Bank Muscat (BKMB) reported a total operating income of OMR 61.69 million for 1Q10, down 30.7% YoY mainly due to a profit of OMR 34.36 million on sale of investments that was included during 1Q09.

Net profit plunged 49.4% to OMR 24.50 million during 1Q10, impacted by the drop in total operating income.

We have revised our FY2010E operating income downwards by 1.3% on account of lower other operating income estimates. Accordingly, our net profit estimate now stands lower by 6.0%, incorporating higher operating expenses.

We are revising our earlier NEUTRAL recommendation to OVERWEIGHT with a revised target price of OMR 1.083, implying an upside of 38.2%.

Net Profit
During 1Q10, the bank registered a 49.4% plunge in net profit to OMR 24.50 million from OMR 48.42 million in 1Q09. Net profit during the year-ago quarter had included a post tax gain of OMR 35.30 million on the sale of HDFC Bank investments and OMR 7.50 million in losses on available-for-sale investment portfolio. Excluding these one-off items, net profit was up 18.9% over 1Q09 adjusted net profit of OMR 20.60 million. Subsequently, the adjusted EPS declined to OMR 0.073 from OMR 0.144 in 1Q09.

We had initiated BKMB on February 21, 2010 with a NEUTRAL recommendation (target price of OMR 1.039 with a 3.1% upside). Currently, the company’s stock is trading at a P/E multiple of 10.47x and 7.90x on 2010E and 2011E earnings, and at a P/BV multiple of 1.33x and 1.19x on 2010E and 2011E BVPS, respectively. Meanwhile, the stock has gained 18.9% since the beginning of this year compared to a loss of 3.6% by the MSM (Muscat Securities Market) 30 Index. Considering the above factors, we have arrived at a target price of OMR 1.083, representing an upside of 38.2% over its current price of OMR 0.784 (as on June 13, 2010). Accordingly, we are revising our earlier NEUTRAL recommendation on Bank Muscat to OVERWEIGHT.

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