We use a two-stage dividend discount model (DDM) to value Al Rajhi, including the present value of 2026-28E dividends and a terminal value assuming 4.00% growth at a 9.5% cost of equity. We set a target price of SAR 115.00 based on this methodology. We cross-check this valuation using: (1) justified price to book valuation vs peers; and (2) comparable valuation relative to Al Rajhi's historical trading range and growth prospects.

We see the following downside risks to our target price:

(1) Further oil price shock – A severe and prolonged oil price correction may hamper business activities in KSA – impacting share price of the bank.

(2) US rate cycle not as expected – Faster-than-expected US rate declines could negatively impact our estimates and valuation.

(3) Regulatory and political risks – Any major change in regulations may impact the bank's business. Further, given KSA’s geographical presence close to some of the relatively troubled regions in the MEA region, any major deterioration in the geopolitical climate may impact the performance of banks in KSA.