• Recent results driven by NII and Investment Income
• Balance Sheet growth to remain subdued in 2011
• Spread to come under some pressure
• Attractive valuations and high dividend yield

Leading private sector corporate bank
Commercial Bank of Qatar (CBQ) is the country’s second largest bank and is also the leading private sector corporate bank with a loan book exposure of 45% (2010) towards the sector. Its exposure to the public sector is relatively low at 15% while that of personal lending and real estate is at 20% each. The bank owns 35% stake in National Bank of Oman, and 40% stake in United Arab Bank, UAE.

Attractive valuations with high dividend yield
We believe CBQ will remain a dividend play with the 2011 dividend yield forecasted to be 8.6%, one of the highest in our coverage universe and next only to Doha Bank. The stock is down by 9.0% in the last three months. Despite asset quality issues and susceptibility to recent changes in Islamic banking and the retail sector, we believe that CBQ’s near term challenges are over blown and positives outweigh concerns. Our fair value for CBQ comes at QAR85.4/share implying an upside potential of 22.5% over its current price and thereby making it our top pick in the sector. We recommend a STRONG BUY on the stock.

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