Bank Muscat

Source: Taib Bank

Quarterly Result Update

Bank Muscat (BKMB) reported a 16.8% decline in total operating income to OMR 188.41 million from OMR 226.58 million, despite an 8.1% increase in net interest income, due to the inclusion of a one-time profit of OMR 53.33 million on sale of investments during 9M09.

Net profit was down 10.3% YoY to OMR 72.17 million during 9M10, affected by the drop in total operating income, and countered by the decrease in impairment for credit losses.

We have revised our FY2010E operating income downwards by 2.9% because of lower other operating income estimate. Factoring in this revision and higher operating expenses, our net profit estimate now stands 0.3% lower, partially offset by lower impairments for credit losses.

We are reiterating our earlier OVERWEIGHT recommendation with a revised target price of OMR 1.069, implying an upside of 17.6%.

Net Profit
Net profit was down 10.3% to OMR 72.17 million from OMR 80.44 million. During the year-ago period, net profit included a post-tax gain of OMR 53.20 million on the sale of investments in HDFC bank, OMR 9.40 million losses on available-for-sale investments, and OMR 25.00 million credit losses incurred towards exposure to a Saudi branch. Excluding these one-time items, net profit was up 17.1% over the adjusted net profit of OMR 61.64 million for 9M09. Overall, annualised EPS decreased to OMR 0.071 from OMR 0.080.

We had updated BKMB on August 09, 2010 with an OVERWEIGHT recommendation (target price of OMR 0.995 with a 17.2% upside). Currently, the company’s stock is trading at a P/E multiple of 12.58x and 10.82x on 2010E and 2011E earnings, and at a P/BV multiple of 1.55x and 1.42x on 2010E and 2011E BVPS, respectively. Meanwhile, the stock has gained 32.7% since the beginning of this year, compared to a gain of 4.0% by the MSM (Muscat Securities Market) 30 Index. Considering the above factors, we have arrived at a target price of OMR 1.069, representing an upside of 17.6% over the current price of OMR 0.909 (as of November 11, 2010). Accordingly, we are reiterating our earlier OVERWEIGHT recommendation on Bank Muscat.

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