Multiple earnings levers, discounted valuation

Research evidence excerpt

Multiple earnings levers, discounted valuation

FoundationM

Investment summary

We initiate coverage of Riyad Bank with an Overweight rating. Our residual income

model-derived target price of SAR26.5 implies c30% upside potential. Although Saudi

Arabia ranks third in our strategist Matt Nguyen's MENA market preference (behind Egypt

and Abu Dhabi), we continue to see selective opportunities within the Kingdom's banking

sector. In our Saudi coverage, SNB and Rajhi remain our preferred exposures supported by

our S.A.F.E. framework and valuations, with Riyad ranking third overall. Our positive

stance on Riyad Bank is shaped by:

i) Leading SME franchise in a structurally attractive segment. Riyad is the largest SME

lender in Saudi Arabia, with a 20%+ market share. We see SME lending as one of the most

attractive growth opportunities in the Kingdom, supported by Vision 2030, localisation

policies and the Kafalah programme. We estimate Riyad’s SME loans can grow at a 16%

CAGR over 2025–30e, ahead of mortgages at c.7% and other retail at low-single-digit

growth, while the bank should be able to broadly maintain market share.

ii) Strong fee engine should support above-loan-growth non-interest income. Riyad has

one of the strongest fee franchises in our Saudi coverage, with the highest fee-to-loan and

fee-to-revenue ratios in 2025. In our S.A.F.E. framework, Riyad ranks third overall and first

on accretive fee quality. This is supported by Riyad Capital, a leading capital markets

platform in a market where household financial asset penetration remains low versus

developed markets, and by a strong corporate franchise with c.15% market share.

Furthermore, the bank’s trade finance and lending linked fees are geared to benefit from