Stronger Operating performance surprised…

Loan Book growth flattens during Q1: Bank Muscat (BKMB) has reported Q1FY2011 preliminary results. Overall Gross loan book of the bank stood at RO 4.197 billion, reporting an increase of 4.1% on a YoY basis. The same has flattened out on a quarter on quarter (QoQ) basis. In absolute terms, the bank has added a meager RO 2.8 million in gross loan book during Q1, which is on the lower side. The credit addition remained subdued during Q1 as compared to a stronger addition of RO 85.204 million seen in gross loans during Q4FY2010.

The breakup of loans is not disclosed in the initial results. As per the management, the credit growth continue to remain higher in the personal loans as compared to corporate book, which is a similar trend seen in FY2010. During FY2010, the bank has grow its Personal and Housing loan book by about 6.1% on a YoY basis, while the corporate growth remained marginal at 1.9%.

Valuations & Outlook: Post Q1 results, we continue to maintain our FY2011E net profit estimates at RO 125.4 million, an increase of 23.4% on a YoY basis. We also maintain our credit growth estimates of about 8% for FY11E. Key concern remains in the form of unexpected increase in provisioning levels and higher than expected losses from associates. At the current levels, the stock trades at 9.6X of FY11E EPS of RO 0.081. The bank also trades at FY2011E P/BV of 1.3X, which is cheaper as compared to the local banking sector average of about 1.7X.

On back of expected revival in credit growth beginning H2FY11E, the maintenance of higher margins during the next two quarters and the anticipated higher recoveries in FY11E, we continue to maintain our ‘Accumulate’ rating on the stock with the revised target price of RO 0.909 (Based on Excess Return Model and PBV), an increase of 16.6% from the current levels.

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