Oman Urban Growth And Saudi Expansion Will Drive Opportunity

Key Takeaways

• Expansion into non-oil sectors, digital banking, and regional markets is driving revenue growth and diversification, strengthening the client and earnings base.
  
• Strategic focus on fee-based income, Sharia-compliant products, and capital strength is improving profitability, risk resilience, and long-term growth potential.
  
• Persistent operating inefficiencies, sector concentration risks, costly funding structure, rising asset quality concerns, and stalled merger benefits threaten sustainable profitability and future growth.

Catalysts

Provides commercial, investment, and Islamic banking services in the Sultanate of Oman.

• The structural growth in Oman's population and accelerating urbanization, combined with economic diversification efforts under Vision 2040, are expected to drive continued expansion in the bank's loan portfolio, particularly through exposure to non-oil sectors and infrastructure, which should support sustained revenue growth.
  
• Regulatory reforms increasing financial inclusion and driving digital adoption across Oman are broadening the accessible market for formal banking-Sohar International's ongoing investment in digital infrastructure and fintech partnerships should enable the bank to attract new customers and lower customer acquisition and servicing costs, positively impacting net margins over time.
  
• The successful merger with HSBC Oman and recent expansion into Saudi Arabia have given Sohar International access to a broader, diversified client base and revenue streams; further regional expansion (especially in KSA) is expected to drive cross-market growth, revenue diversification, and cost synergies, boosting future earnings and profit margins.
  
• Increased focus on fee income (from payments, cash management, and Islamic finance) and growing demand for Sharia-compliant products are likely to enhance non-interest revenue streams, supporting topline growth and insulating earnings from NIM (Net Interest Margin) volatility.
  
• Ongoing improvements in sovereign credit ratings and strong capitalization (including planned Tier 1 issuance and a recent rights issue) position the bank to access lower-cost funding and take advantage of future lending/investment opportunities, supporting long-term ROE (Return on Equity) and balance sheet strength.

Sohar International Bank SAOG Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sohar International Bank SAOG's revenue will grow by 19.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 42.8% today to 48.1% in 3 years time.
• Analysts expect earnings to reach OMR 167.3 million (and earnings per share of OMR 0.02) by about August 2028, up from OMR 86.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.0x on those 2028 earnings, up from 10.5x today. This future PE is greater than the current PE for the OM Banks industry at 11.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 23.5%, as per the Simply Wall St company report.

Sohar International Bank SAOG Future Earnings Per Share Growth

Risks

• The increasing cost-to-income ratio, driven by ongoing investments in KSA expansion, infrastructure, and branding, signals persistent operating inefficiencies that could keep net margins under pressure relative to peers, especially if expected synergies from new operations lag or fail to materialize.
  
• Heightened reliance on corporate sector loan growth-particularly in the rapidly expanding but relatively untested Saudi market-exposes Sohar International Bank SAOG to sector concentration risk and potential asset quality deterioration, which may lead to higher provisioning costs and negatively affect earnings.
  
• Volatility in the deposit mix, with substantial growth in fixed/time deposits versus slower CASA growth, raises funding costs and leaves the bank more vulnerable to interest rate fluctuations, limiting sustainable net interest margin (NIM) improvement and pressuring profitability.
  
• A rising share of Stage 2 loans (from 14% to 17% of the loan book) and a cost of risk currently below the cycle historical average suggest that credit costs and loan loss provisions may increase in the future, eroding profits and constraining capital generation.
  
• The indefinite postponement of the Ahlibank merger and regulatory uncertainties surrounding future consolidation initiatives may impede the realization of expected scale benefits, regional diversification, and cost synergies, constraining future revenue growth and long-term earnings power.

Valuation

• The analysts have a consensus price target of OMR0.175 for Sohar International Bank SAOG based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be OMR347.5 million, earnings will come to OMR167.3 million, and it would be trading on a PE ratio of 16.0x, assuming you use a discount rate of 23.5%.
• Given the current share price of OMR0.14, the analyst price target of OMR0.18 is 21.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.