Bank Muscat -Equity Report -27-06-2012

Bank Muscat announced details of its planned rights issue today. The bank will be raising RO 96.71 million by issuing 226.50 million shares at a price of RO 0.427/share. In contrast to the earlier announcement made by the bank where it said the rights issue would be at 20% discount to the market price, the board of directors decided to offer 25% discount to the closing price of the bank’s shares on 24thJune 2012. Record date for the rights issue will be 02 July 2012. Subscription will start on 09 July and will close on 23 July 2012.

Even after adjusting for the dilution impacts, Bank Muscat’s valuations remain at attractive levels of 1.07x FY12E PBV and 8.8x FY12E PER. We adjust our 12 month target price to RO 0.744 in order to capture the impact of the rights issue. Considering the 33% upside potential that is being offered by the stock, we maintain our strong buy recommendation on the shares of Bank Muscat.