Q1FY10 Result at a glance

Sector: Bank

Bank Muscat

CMP (RO) 0.902 29 April 2010 Inline

Equity Shares (m) 1346.413 0.902
Face Value (RO) 0.100 Sector Rating/Stock View (Outperformer): Q1FY10 performance of Bank Muscat
52-week Range 1.030/.593 has been in line with expectations, with NII increasing by 12%, though PAT was
Mcap (RO million) 1214.464 down 49% due to the profit on sale of securities recorded by the company in Q109.
YTD/1 Year Return -2.20%/+32.34% At the current market price the bank is quoting at 1.95X the adjusted FY10E book
Abs. Target Return +15.29% value and we recommend an outperformer rating on the company with a target
price of RO.1.013.

Results Overview

For first quarter ended March 2010, Bank Muscat has registered a robust 12% growth in its NII at RO 44.367 mn
compared to RO 39.618 mn registered during the same period previous year.

Fee income during Q1FY09, grew by 15% while other operating income excluding profit from sale of securities
grew by 14%.

Operating expenses for the same period grew by 15.94% to RO 24.643 mn at the back of expansion of delivery
channels, investment in technology and higher manpower cost. On the other hand, provision for impairment was
flat at RO 11.872 mn.

PAT excluding profit on sale of securities grew by around 74% to RO 24.446 mn compared to 14.057 mn for the
same period previous year.

Despite the strong performance by the company on a YoY basis, the sequential performance was a lag. NII fell by
7%, while profits before provisions fell by 20%. However PAT during the current quarter was up compared to a
loss of RO 6.727 mn registered during Q4FY09. The loss was mainly due to higher provisioning during Q4FY09.

Loans and advances were flat at RO 4814 mn as on Q1FY10 compared to RO 4762 mn as on Q1FY09, while
deposits from customers registered a modest 11% growth during the quarter.

At the current market price the bank is quoting at 1.95X the adjusted FY10E book value and we recommend an
outperformer rating on the company with a target price of RO.1.013.

QUARTERLY PERFORMANCE (RO MILLION)

Quarter Ending Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10

Net Interest Income 39.618 43.751 43.416 47.581 44.367
% Change -15.50% 10.43% -0.77% 9.59% -6.75%
Operating Profit 67.762 58.001 36.637 46.520 37.126
% Change 58.20% -14.40% -36.83% 26.98% -20.19%
Provision for Credit Losses 11.187 40.29 17.256 29.509 11.795
Recoveries 1.14 3.734 3.402 2.316 2.852
Impairment of Investments 1.72 0.485 -0.862 1.597 0.077
Net Profit after Tax 48.417 12.021 20.007 -6.727 24.474
% Change -75.17% 66.43% -133.62% 0.00%
Q1FY10 Result Snap shot

NII improve year on year but drops sequentially

 For the first quarter of FY10 Bank of Muscat (BOM) registered a 12% growth in net interest income at RO
44.367 mn compared to the same period previous year. However compared to Q4FY09 the same was a
drop of 7%. Both interest income and interest expenses saw a drop in Q1FY10 compared to Q1FY09, even
as net interest income increased at the back of general moderation in the interest rate of deposits.

 Loans and advance during the period was flat compared to both QoQ and YoY, though deposits grew by
11% YoY. Growth in deposits was driven mainly by nil/low cost deposit as its proportion to total deposits
increased from 50% in Q1FY09 to more than 60% in Q1FY10. This in turn aided the drop in the average
cost of deposit to 1.95% compared to 2.74% in the same period previous year, while the average net
interest margin for Q1FY10 has increased to 3.53% compared to 3.13% during the same period previous
year.

Excluding sale of securities in Q109, bottom line witness growth

 Fee income increased by 15% in Q1FY10 to RO. 13.694mn over Q1FY09, as earnings before provisions
increased by 11%. Compared to Q1FY09 numbers, provisions for impairment was flat at around RO 11.872
mn, while PAT (before comprehensive income) witnessed a drop of 50% over the same period previous
year. However this drop was on account of profit on sale of securities of RO 34.360 mn registered by the
company in Q1FY09. Adjusted for this PAT of the company during the period would have increased by
around 74%.

Sequentially profitability improves at the back of lower provisions

 Despite a 20% drop in operating profits compared to Q4FY09, PAT for Q1FY10 was higher at RO 24.474 mn
compared to a loss of RO 6.727 mn during Q4FY09. The same was due to lower provisions of RO 11.872
mn compared to RO 29.509 mn in Q4FY09.

Result – Mixed bag

 Though the company’s performance, adjusted for profit on sale of securities, has been better on a YoY
basis the same is not impressive on a QoQ basis. Flat loans and advances on the one hand and a 18%
sequential growth in deposits on the other hand has resulted in lower NII and operating profits. But for
the higher provisioning in Q4FY09, the profitability would have been lower.

Going forward and Valuations

 For FY10 we expect BOM to register a 12% growth in its loan books, which in turn is expected to result in a
9.2% growth in NII, with PAT growing to RO 90.762 mn. In FY09 the provisions for loan impairment had
increased substantially, also the company had made provisions towards change in fair value of AFS
investments. These in turn had resulted in subdued comprehensive income for the bank. Given these the
performance of BOM is expected to be better in FY10.

 At the current market price the bank is quoting at 1.95X the adjusted FY10E book value and we
recommend an outperformer rating on the company with a target price of RO.1.013.
 Income Statement Balance Sheet
Y/e 31 December 2008 2009 2010E Statement of Financial position 2008 2009 2010E

RO in Million Uses of Funds

Net Interest Income 162.107 174.366 190.418 To Customers 3727.700 3838.211 4298.796

Net income from fees and Commn 54.827 49.811 57.283 To Banks 1077.557 1015.691 1137.574

Total Net Income from Operations 216.934 224.177 247.700 Investments 469.321 209.219 217.967

Staff Expences 48.899 45.883 51.721 Total Business Usage of Funds 5274.578 5063.121 5654.337

Other Admn Expences 29.588 29.620 34.452 Net Block 21.948 26.276 22.010
Short term Asset 274.336 139.825 259.144
Earnings before Depreciation and Prov 138.447 148.674 161.527
Cash and Bank Balances 452.761 608.099 523.112
Depreciation 5.737 6.622 5.784
Total Assets 6023.623 5837.321 6458.602
Earnings before Provisions 132.710 142.052 155.743
Sources of Funds
Total Provisions 54.117 121.497 74.897
Deposits from Customers 3173.032 3068.425 3739.496
Earnings Post Provisions 78.593 20.555 80.846
Due to Banks 1412.576 1395.747 1188.862
Other Income 77.124 11.561 20.000
Other LT debts 341.628 430.217 518.280
Earning before Tax 155.717 32.116 100.846
Deffered Tax Liab -2.385 -10.575 -10.575
Tax 14.680 14.264 10.085
Minority Interest 0.000 0.212 0.212
EAT 141.037 17.852 90.762
Source: Company Reports, FSC Research Total Long Term Outside Liabilities 4924.851 4884.026 5436.276
Total Short Term Outside Liabilities 386.250 276.824 290.665
Key Ratios Total Outside Liabilities 5311.101 5160.850 5726.941
Financial Position 2008 2009 2010E Share Holders Equity 712.522 676.471 731.661
Capital Adequacy Total 13.02% 15.20% Total Liabilities 6023.623 5837.321 6458.602
Source: Company Reports, FSC Research
Networth/LT Liab 11.08% 11.15% 10.95%
Loan to Deposits 97.52% 99.17% 99.81%
Investments to Deposits 14.79% 6.82% 5.83%
RONW 15.24% 11.84% 14.01%
Net Interest Income/LT outside funds 3.70% 3.37% 3.55%
NPA Provision/L&A 1.13% 2.50% 1.38%
GNPA/L&A 2.43% 3.69% 4.00%
NNPA/L&A 0.84% 1.09% 1.00%
EPS 0.087 0.068 0.067
Div % 20.00% 20.00% 28.14%
CEPS 0.092 0.075 0.072
ABVPS 0.434 0.421 0.463
P/E 10.37 13.18 13.39
P/ABV 2.08 2.14 1.95
Div Yeild 2.22% 2.22% 3.05%
Source: Company Reports, FSC Research
 Rating and Other Definitions/Identifiers

Rating Structure

Our equity rating structure is based on Absolute Valuations- based on Discounted Cash Flow Models (DFC),
although we look at PE, EV/EBITDA and other related valuation metrics. Our implicit belief is that stock prices
tend to approximate, at one time or another, their true value based on future cash flows, if these estimates
materialize.

Definitions of Ratings

OP= Outperform. We expect the stock to outperform the MSM Index over the next 12 months
IL=In Line. We expect the stock to perform in line with the MSM Index over the next 12 months
UP=Underperform. We expect the stock to underperform the MSM Index over the next 12 months

Other Ratings

Coverage View. The coverage view represents each analysts overall fundamental outlook on the sector. The
coverage view will consist of the following designations: Attractive (A), Neutral (N), and Cautious (C).

Other Ratings/Identifiers

NR=Not Rated. The investment rating and target price, if any, has been suspended temporarily. Such
suspension is applicable when Financial Services Company is acting in an advisory capacity in a merger of
strategic transaction involving this company.

CS=Coverage suspended. Financial Services Company has suspended coverage of this company.

NC=Not covered. Financial Services Company does not cover this company.

RS=Rating Suspended. Financial Services Company Research has suspended the investment rating and price
target, if any, for this stock, because there is no sufficient fundamental basis for determining an investment
rating or target. The previous investment rating and target price, if any, are no longer in effect for this stock
and should not be relied upon.

Equity Research Team Brokerage

Aditya Ravikrishnan aditya@finserve.net Zakariya Al Rawahi zakaria@finserve.net

Kaushik KE kekaushik@finserve.net Ahmed Harmali ahmed.harmali@finserve.net
Zulaikha Al-Hooti hooti@finserve.net Salim Al Rawas alrawas@finserve.net
Faisal Salem Ojaily foox_11@finserve.net
Portfolio Management

S Sridhar sridhar@finserve.net

This report is based on information available to the public. It is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The
information and opinions in this report were prepared by Financial Services Company SAOG (FSC) from information available to the pubic & sources it believes to be
reliable at the time of publication. The investment discussed or recommended in this report may not be suitable for all investors. Investors must take their own
investment decisions based on their investment objectives and financial position. FSC accepts no responsibility or liability for losses or damages incurred as a result
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effect transactions of companies mentioned in this report. FSC may also seek to perform or have performed investment banking services for companies mentioned
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