Building on a Cleaner Balance Sheet

• Our new estimate of Bank Muscat’s fair value per share stands at RO 1.160, 16% above the share’s closing price as of March 11, 2010; hence, our recommendation on the stock is “Accumulate”. This value is 17% above our previous fair value estimate of RO 0.990, driven largely by higher loans, higher operating income, and higher net income at the end of our forecast horizon than previously forecasted.

• Bank Muscat reported a net profit of RO 73.7 million in 2009, 21% below 2008, as a result of several non-recurring events, including heavy loan loss provisioning towards overseas exposures, share of losses from associates, and impairment charges on associates. On the upside, the bank disposed of its 2.67% stake in HDFC Bank in India during the year, for a post-tax profit of RO 53.2 million. Excluding this gain, net profit in 2009 would have declined to RO 20.5 million, 78% lower than the net profit in 2008.

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