Q12013EarningsInitialView

GBCMResearch

BankMuscatQ12013EarningsInitialView

OverallReview:OperatingIncomeandPATBelowourestimates

GrowthModeration,bookedoneoffexpenses,Lowerimpairmentchargesledtobetterearnings
(ClosingPrice:0.629,Rating:BUY,12MFairValue:0.747)

Loanbookdeclinedsequentially:AsatendofMarch2013,thenetloanbookofthebankisatRO5.486
billion,reportinganincreaseof10%YoYandalsoadeclineof2.1%QoQ.Inabsoluteterms,thenetloans
havedeclinedbyaboutRO114.952million,whichcouldbeonthebackoftheanticipatedrepayments
from Government and Quasi Government side. This is lower than our estimated 2.5% growth in loan
bookforthequarter.Whilethegrowthisalsolowerthantheinitialmanagementguidanceof14%credit
growthfor2013E,whichwehaveassumedinourearningsmodel.

Depositgrowthstronger:Totalcustomerdeposits(includingCDs)ofthebankstoodatRO5.506million,
reporting an increase of 8.9% YoY and about 2.4% YoY. This is in line with our estimates. In absolute
terms,thetotaldepositbasehasincreasedbyRO128.384millionduringthequarter.

Islamic Banking Performance during Q1: The bank has started its Islamic Banking window operations
(Meethaq) during the beginning of this current fiscal year. Q1 numbers include the consolidated
financials of both conventional and Islamic Banking businesses. As per the bank disclosure, the total
Islamic finance receivables stood at RO 188 million, forming about 3.4% of the total loan book. The
IslamicBankingdepositsofthebankstoodatRO126.4million,formingabout2.3%ofthetotaldeposits.

MarginPressurecontinued,OperatingIncomeBelowourestimates:Overallnetinterestincomeofthe
bankfromconventionalbankingforQ12013isatRO54.9millionascomparedtoRO54.399millionin
Q12012,reportingamarginalgrowthof0.9%YoYandasharperdeclineof11.6%QoQ.Thisislowerthan
ourestimatesofRO61million.Asperthebank,theloweroperatingincomeisduetothecompressionin
netinterestmargins.Asperourcrudecalculations,thenetinterestmarginforthequarterhasdeclinedc.
30 basis points YoY and about 7 basis points QoQ. While, net income from Islamic Financing for the
quarterisatRO1.5million.

Other operating income for the quarter stood at RO 24.3 million, reporting a decline of 1.1% YoY and
about 5.9% QoQ on the back of lower credit growth and also regulatory changes on the fee and
commissionincomestructure.ThisislowerthanourestimatesofRO26million.Totaloperatingincome
forQ1isatRO80.7million,reportinganincreaseof2.2%YoYandadeclineof8.2%QoQ.Thisisbelow
ourestimatesofRO88.250million.

OperatingExpenseshigherby8%YoY:TotaloperatingexpensesforthequarterstoodatRO36.3million
ascomparedtoRO33.504millioninthesameperiodlastyear,anincreaseof8.3%andabout1.7%YoY.
Thebreakupoftheoperatingexpensesisnotgiveninthepreliminaryresults.DuringQ1,thebankhas
bookedoneoffoperatinglossprovisionofRO15millionrelatedtoitsprepaidtravelcardfraud.Including
thisoneoffitem,thetotaloperatingexpensesstoodatRO51.3million.Onbackofthis,theoperating
profitofthebankisatRO29.4million,reportingadeclineof35.3%YoY.Excludingthisexceptionalloss,
theoperatingprofitwouldbeRO44.4million,revealingadeclineof2.3%YoYandabout15%QoQ.

April17,2013


Q12013EarningsInitialView

GBCMResearch

Impairmentchargessignificantlylower:DuringQ12013,thebankhasprovidedforimpairmenttowards
credit losses to an extent of RO 7.4 million as compared to RO 12.492 million in Q1 2012, reporting a
sharperdeclineof40.8%YoYandabout56.5%QoQ.Webelievethiscouldbeonthebackoflowerthan
estimated credit growth leading to minimal general provisioning. We need to look in for the detailed
numberstogetfurtherdetailsonthis.Added,thebreakupoftotalrecoveriesandalsotheperformance
ofassociatesarenotgiveninthepreliminaryresults.

PATlowerthanourestimates:NetprofitofthebankforthequarterstoodatRO25millionascompared
toRO33.429millioninthesameperiodpreviousyear,reportingadeclineof25.2%YoYandabout28.6%
QoQ.ThisislowerthanourestimatesofRO27.808million.Excludingtheoneoffexpenses,thePATof
thebankwouldhavebeenc.RO38.2million,anincreaseof14.3%andabout9.1%QoQ.

Outlook Growth and Margin concern remain: On the positive note, we continued to see growth in
deposits during the quarter and also lower impairment charges of the bank (the lowest quarterly
impairmentlossesbookedsinceQ12009).WhileQ1numberscameinnegativeontheoperationalfront
duetodeclineinloanbookandalsomargincompression,whichneedstobewatchedoutinthecoming
quarters.

Valuationsstillattractive:Atthecurrentlevels,thestocktradesatPE(2013E,excludingoneofflosses)
of 8.4X and PBV (2013E) of 1.1X. Wehave a BUY rating on the bank with the 12Mtarget price of RO
0.747.Onthevaluationsfront,thebanklooksstillattractiveatthecurrentlevels.Wewouldberevising
our 2013E earnings model and valuations post announcement of detailed numbers and management
discussion.


Q12013EarningsInitialView

GBCMResearch

Pleasefindbelowthetableforyourreference.

IncomeStatement(InRO000s)

Q1FY13

Q1FY12

YoY(%)

Q4FY12

QoQ(%)

NetinterestincomeConventional
NetIncomefromIslamicFinancing
Otheroperatingincome
TotalOperatingIncome
TotalOperatingexpenses(IncDep.)
LossonCreditCardFraud
EBIT
Impairmentforcreditlosses
ProfitBeforeTaxation**
Taxes**
ProfitafterTax

54,900
1,500
24,300
80,700
36,300
15,000
29,400
(7,400)
28,409
3,409
25,000

54,399

0.9%

62,128

11.6%

24,570
78,969
33,504

45,465
(12,492)
38,641
5,212
33,429

1.1%
2.2%
8.3%

5.9%
8.2%
1.7%

35.3%
40.8%
26.5%
34.6%
25.2%

25,816
87,944
35,678

52,266
(17,026)
36,066
1,053
35,013

43.7%
56.5%
21.2%
223.8%
28.6%

BalanceSheet(InRO000s)

Q1FY13

Q1FY12

YoY(%)

Q4FY12

QoQ(%)

5,486,000
5,506,000

4,988,074
5,054,801

10.0%
8.9%

5,600,952
5,377,616

2.1%
2.4%

Loansandadvances(Net)
Customerdeposits,includingCDs
IslamicBankingWindowOperations(InRO000s)
IslamicFinanceReceivables
IslamicFinanceReceivables(as%oftotalloans)
IslamicBankingcustomerdeposits
IslamicBankingdeposits(as%oftotaldeposits)
Source:BankAnnouncement,GBCMResearchEstimates

188,000
3.4%
126,400
2.3%

Q1FY13
Actuals
54,900
1,500
24,300
80,700
36,300
15,000
29,400
(7,400)
28,409
3,409
25,000

Q1FY13
GBCMEst.
61,000
1,250
26,000
88,250
34,750
15,000
38,500
(12,500)
31,600
3,792
27,808

Q1FY13
Actuals
5,486,000
5,506,000

Q1FY13
GBCMEst.
5,740,976
5,565,833

Deviation

Comment

10.0%
20.0%
6.5%
8.6%
4.5%
0.0%
23.6%
40.8%
10.1%
10.1%
10.1%

Below
Below
Below
InLine
Below
Below

Below

Deviation

Comment

4.4%
1.1%

InLine
InLine


Q12013EarningsInitialView

GBCMResearch

FinancialHighlightsQuarterlyTrend

IncomeStatement(InRO000s)
Netinterestincome(RO000s)
YoY(%Chg)
QoQ(%Chg)
Otheroperatingincome
YoY(%Chg)
QoQ(%Chg)
TotalOperatingIncome
YoY(%Chg)
QoQ(%Chg)
Operatingexpenses(Inc.Depreciation)
LossonCreditCardFraud
EBIT
YoY(%Chg)
QoQ(%Chg)
Impairmentforcreditlosses
ProfitBeforeTaxation**
YoY(%Chg)
QoQ(%Chg)
Taxes**
ProfitafterTax
YoY(%Chg)
QoQ(%Chg)
BalanceSheet(InRO000s)
Loansandadvances(Net)
YoY(%Chg)
QoQ(%Chg)
Customerdeposits,includingCDs(RO000s)
YoY(%Chg)
QoQ(%Chg)

Q1FY11
53,750
21.1%
11.1%
22,593
30.5%
16.2%
76,343
23.8%
12.6%
31,459

Q2FY11
52,231
19.5%
2.8%
18,316
10.9%
18.9%
70,547
17.1%
7.6%
29,698

Q3FY11
53,930
10.1%
3.3%
19,859
13.4%
8.4%
73,789
11.0%
4.6%
29,636

Q4FY11
52,208
13.6%
3.2%
21,357
20.7%
7.5%
73,565
15.8%
0.3%
30,097

Q1FY12
54,399
1.2%
4.2%
24,570
8.8%
15.0%
78,969
3.4%
7.3%
33,504

Q2FY12
54,461
4.3%
0.1%
21,208
15.8%
13.7%
75,669
7.3%
4.2%
32,801

Q3FY12
59,417
10.2%
9.1%
21,653
9.0%
2.1%
81,070
9.9%
7.1%
32,625

Q4FY12
62,128
19.0%
4.6%
25,816
20.9%
19.2%
87,944
19.5%
8.5%
35,678

44,884
21.2%
25.2%
(13,061)
32,881
14.1%
23.3%
5,043
27,838
13.7%
29.9%

40,849
15.0%
9.0%
(12,660)
34,430
31.4%
4.7%
5,036
29,394
30.3%
5.6%

44,153
9.4%
8.1%
(15,231)
34,051
12.7%
1.1%
4,153
29,898
18.9%
1.7%

43,468
27.5%
1.6%
(15,203)
34,481
19.6%
1.3%
4,431
30,050
24.4%
0.5%

45,465
1.3%
4.6%
(12,492)
38,641
17.5%
12.1%
5,212
33,429
20.1%
11.2%

42,868
4.9%
5.7%
(12,566)
40,374
17.3%
4.5%
5,415
34,959
18.9%
4.6%

48,445
9.7%
13.0%
(15,814)
41,674
22.4%
3.2%
5,869
35,805
19.8%
2.4%

52,266
20.2%
7.9%
(17,026)
36,066
4.6%
13.5%
1,053
35,013
16.5%
2.2%

Q1FY11
3,999,085
5.0%
0.2%
3,787,599
4.4%
2.9%

Q2FY11
4,267,252
11.5%
6.7%
4,331,942
21.7%
14.4%

Q3FY11
4,536,803
17.2%
6.3%
4,723,316
37.2%
9.0%

Q4FY11
4,819,432
20.2%
6.2%
4,850,489
31.8%
2.7%

Q1FY12
4,988,074
24.7%
3.5%
5,054,801
33.5%
4.2%

Q2FY12
5,180,880
21.4%
3.9%
5,039,542
16.3%
0.3%

Q3FY12
5,359,287
18.1%
3.4%
4,955,429
4.9%
1.7%

Q4FY12
5,600,952
16.2%
4.5%
5,377,616
10.9%
8.5%

Source:CompanyReports,GBCMResearch,**EstimatesforQ12013

Q1FY13
54,900
0.9%
11.6%
24,300
1.1%
5.9%
80,700
2.2%
8.2%
36,300
15,000
29,400
35.3%
43.7%
(7,400)
28,409
26.5%
21.2%
3,409
25,000
25.2%
28.6%

Q1FY13
5,486,000
10.0%
2.1%
5,506,000
8.9%
2.4%


Q12013EarningsInitialView

GBCMResearch

IncomeStatementHighlights(InRO000s)

2007

2008

2009

2010

2011

2012

2013E

TotalInterestIncome

218,272

263,463

279,530

275,195

286,958

320,468

347,576

Interestexpense

93,450

101,356

105,164

88,000

74,839

90,063

99,162

NetInterestIncome

124,822

162,107

174,366

187,195

212,119

230,405

248,413

Otheroperatingincome

48,107

74,694

63,479

78,301

82,125

93,247

106,669

Netoperatingincome

172,929

236,801

237,845

265,496

294,244

323,652

355,083

Operatingexpenses

66,240

78,487

75,503

94,149

109,734

123,401

135,576

Gainor(loss)fromassociate

5,499

(3,248)

(10,455)

(12,637)

(3,529)

(3,418)

1,057

Profitbeforetaxation

97,707

137,903

58,037

117,800

136,209

156,755

175,173

Taxation

13,450

14,680

14,264

16,205

18,663

17,549

22,772

NetProfit

84,257

123,223

43,773

101,595

117,546

139,206

152,400

ReportedNetProfit

84,257

93,731

73,718

101,595

117,546

139,206

152,400

Source:CompanyReports,GBCMResearchEstimates

BalanceSheetHighlights(InRO000s)

2007

2008

2009

2010

2011

2012

2013E

Cash&BalancesWithCBO

487,912

452,761

608,099

726,055

825,863

663,366

539,408

HeldtoMaturity

32,164

161,698

24,311

29,922

67,041

300,553

305,553

InterbankPayments

587,802

550,349

869,101

726,050

1,339,927

Investments

86,233

216,948

120,055

237,105

275,812

304,820

319,078

InvestmentsinAssociates

99,701

92,903

67,172

54,917

49,595

45,941

46,998

1,077,557 1,015,691

GrossLoans

2,795,563

3,853,274 4,052,056

4,194,192

4,995,926

5,811,780

6,625,429

NetLoans

2,686,863

3,727,700 3,838,211

4,007,926

4,819,432

5,600,952

6,374,849

FixedAssets

19,090

21,948

26,276

74,788

71,792

69,263

72,726

OtherAssets

217,960

276,721

150,921

170,066

249,365

202,724

292,854

TotalAssets

4,217,725 6,028,236 5,850,736 5,851,128 7,228,001 7,913,669 9,291,393

TotalInterbankLiabilities

663,236

1,412,576 1,395,747

759,886

730,927

750,754

1,346,950

Totalcustomerdeposits

2,322,089

3,173,032 3,068,425

3,526,953

4,749,489

5,324,016

6,023,117

224,803

161,578

108,403

93,403

CD's,Bonds&FRNs

180,723

TotalOtherliabilities
TotalTiertwocapital
TotalTier1capital
TotalLiabilities

228,128

209,403

315,607

386,250

277,345

359,592

380,892

398,175

397,526

108,500

113,500

188,500

183,500

334,533

259,700

259,700

627,570

714,750

711,316

796,394

870,582

4,217,725 6,028,236 5,850,736 5,851,128 7,228,001 7,913,669 9,291,393

Source:CompanyReports,GBCMResearchEstimates

1,072,621 1,170,697


Q12013EarningsInitialView

GBCMResearch

RatioAnalysis
PerShareAnalysis(RO)
EarningsPerShare(BeforeExtraordinaries)
EarningsPerShare(Reported)
DividendPerShare
BookValuePerShare

ValuationRatios(x)
PricetoEarningsRatio
PricetoBookRatio
DividendYield

Profitability&ReturnMeasures(OnAdj)(%)
ReturnonEquity
ReturnonAverageEquity
ReturnonAssets
ReturnonAverageAssets
NetInterestIncome/Avg.Assets
OperatingProfit/Avg.Assets
CosttoIncome

Spreads(%)
YieldonInterestbearingassets
CostofFunds
InterestSpread
NetInterestMargins

CapitalAdequacy(%)
Equity/Assets
Equity/GrossLoans

LiquidityMeasures(%)
LiquidAssets/TotalAssets
BankBorrowings/TotalAssets
NetLoans/Deposits
CustomerDeposits/TotalLiability

CreditQualityIndicators(%)
TotalProvisions/GrossLoans
ProvisionCoverage
NPA's/GrossLoans
NPA's/TotalAssets
NPA's/NetWorth
Source:CompanyReports,GBCMResearchEstimates

2007

2008

2009

2010

2011

2012

2013E

0.089
0.078
0.050
0.470

0.114
0.087
0.020
0.664

0.041
0.068
0.020
0.660

0.075
0.075
0.025
0.591

0.076
0.076
0.025
0.562

0.068
0.068
0.025
0.526

0.075
0.075
0.025
0.574

8.0
1.34
7.9%

13.4%
17.8%
2.0%
2.3%
3.5%
3.0%
40.7%

7.0%
3.3%
3.7%
3.7%

14.9%
22.4%

12.3%
15.7%
115.7%
55.1%

3.9%
145.9%
2.7%
1.8%
11.9%

7.2
0.95
3.2%

17.2%
18.4%
2.0%
2.4%
3.2%
3.1%
35.6%

5.8%
2.5%
3.4%
3.4%

11.9%
18.5%

10.2%
23.4%
117.5%
52.6%

3.3%
138.8%
2.3%
1.5%
12.7%

9.2
0.95
3.2%

6.2%
6.1%
0.7%
0.7%
2.9%
2.7%
34.5%

5.2%
2.1%
3.1%
3.1%

12.2%
17.6%

10.8%
23.9%
125.1%
52.4%

5.3%
106.0%
5.0%
3.4%
28.4%

8.3
1.06
4.0%

12.8%
13.5%
1.7%
1.7%
3.2%
2.9%
38.8%

5.1%
1.8%
3.3%
3.3%

13.6%
19.0%

12.9%
13.0%
113.6%
60.3%

4.4%
105.9%
4.2%
3.0%
22.1%

8.3
1.12
4.0%

13.5%
14.1%
1.6%
1.8%
3.2%
2.8%
41.1%

4.9%
1.4%
3.5%
3.5%

12.0%
17.4%

12.4%
10.1%
101.5%
65.7%

3.5%
118.4%
3.0%
2.1%
17.1%

9.2
1.20
4.0%

13.0%
14.3%
1.8%
1.8%
3.0%
2.6%
41.6%

4.7%
1.5%
3.3%
3.2%

13.6%
18.5%

12.2%
9.5%
105.2%
67.3%

3.6%
121.4%
3.0%
2.2%
16.2%

8.4
1.10
4.0%

13.0%
13.6%
1.6%
1.8%
2.9%
2.6%
41.3%

4.6%
1.4%
3.2%
3.0%

12.6%
17.7%

9.1%
14.5%
105.8%
64.8%

3.8%
114.6%
3.3%
2.4%
18.7%


Q12013EarningsInitialView

GBCMResearch

StockRatingMethodology:

BuyUpsidemorethan20%
AccumulateUpsidebetween10%and20%
NeutralUpsideordownsidelessthan10%
ReduceDownsidebetween10%and20%
SellDownsidemorethan20%
NotRatedStocksnotinregularresearchcoverage

ContactDetails,

EquityResearch
KanagaSundar
VijaySridharan

Contact
(+968)24790614Ext534
(+968)24790614Ext533

Email
sundar@gbcmoman.net
vijay@gbcmoman.net

InstitutionalBroking
TalalAlBalushi

(+968)24790614Ext560

talal@gbcmoman.net

InstitutionalSales
HunainaBanatwala

(+968)24790614Ext559

hunaina@gbcmoman.net

Report Disclaimer: This document has been prepared and issued by Gulf Baader Capital Markets SAOC ("the Company") on the basis of publicly available
information,internallydevelopeddataandothersourcesbelievedtobereliable.Whileallcarehasbeentakentoensurethatthefactsstatedareaccurateand
theopinionsgivenarereasonable,neitherGulfBaaderCapitalMarketsSAOCnoranyemployeeshallbeinanywayresponsibleforthecontentsofthisreport.
TheCompanymayhaveapositionandmayperformbuying/sellingforitselforitsclientsinanysecuritymentionedinthisreport.Thisisnotanoffertobuyor
selltheinvestmentsreferredtherein.