• Profitability exceeded our expectations ?
• Net interest income grew; jump in non-interest income
• Expecting credit to growth at 6% in 2011
• Disappointment in associate continues

Profitability exceeded our expectations
Bank Muscat reported OMR27.8mn for 1Q11, representing a decrease of 5.4%QoQ and an increase of 13.7%YoY. The increase in profitability was a result of an improvement in the top line while non interest income remained on the high side. The bank’s net profit in 1Q11 was affected by losses from associates amounting to OMR1.8mn and high provisioning in the first quarter. In 2011, we expect the net profit to be OMR111mn representing 9.7% growth as compared to 37.8%, assuming the bank profit will be pressured by losses from BMI and staff cost increase.

Valuation update
By the virtue of its size, the bank is expected to hold a lion’s share in any business development opportunity. Using DDM and P/BV multiple as our valuation methodology, we arrived at a fair value of OMR0.805, Offering an upside potential of 7.4% on the closing price (as of 20 June 2011) of OMR0.750. Therefore we maintain our recommendation at “Hold”


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