Al-Dawaa's Weak Performance Across the Board in Q4

Overview

This report analyzes the Q4 2025 performance of Al-Dawaa, Saudi Arabia's second-largest pharmaceutical retailer. Results were below expectations across the board, with revenue, EBIT, and adjusted net profit missing J.P. Morgan estimates by 6%, 28%, and 39% respectively. The report maintains a Neutral rating with a target price of 60 Saudi Riyals, based on the company's competitive position in Saudi pharmaceutical retail and growth potential in new business segments.

Core views

Weak Q4 performance: Revenue declined 1.0% year-over-year, reversing Q3's 4.2% growth. By segment, retail sales fell 1.4%, while wholesale and other verticals grew 4.4%. Significant profitability decline: EBIT dropped 14.4% year-over-year, adjusted net profit fell 20.6% to 68 million Saudi Riyals. Gross margin decreased 67 basis points to 34.8%, mainly due to competitive pressures and rising operational costs. Competitive landscape: Al-Dawaa is Saudi Arabia's second-largest pharmaceutical retailer with ~20% market share, trailing Nahdi's 31%. The report notes that Al-Dawaa's first-mover advantage on the Wasfaty platform is weakening as Nahdi recently joined. The value creation in new verticals (pharmaceutical wholesale distribution and logistics) remains unproven. Financial highlights: The company declared Q4 dividends of 53.55 million Saudi Riyals, with an 88% payout ratio and 1.3% dividend yield. Net closure of 4 pharmacies during the quarter, bringing total stores to 952.

Analysis framework

The report uses a DCF model for valuation, applying a 10.9% weighted average cost of capital (with 4.7% risk-free rate) and 2.5% perpetual growth rate, arriving at a fair equity value of 60 Saudi Riyals per share by end-2027. Comparative analysis benchmarks Al-Dawaa against main competitor Nahdi to assess its competitive position in Saudi pharmaceutical retail.

Methodology notes

• Valuation MethodDCF Discounted Cash Flow

  DCF Discounted Cash Flow Model

  This is the core method for assessing intrinsic value by forecasting future free cash flows and discounting them to present value. The report uses 10.9% WACC and 2.5% perpetual growth rate to estimate Al-Dawaa's fair value

• Competitive & Strategic FrameworkMoat / competitive advantage

  Competitive Advantage Analysis

  The report analyzes how Al-Dawaa's first-mover advantage on Wasfaty platform translates into competitive edge, but this is weakening as competitor Nahdi joins, reflecting the dynamic nature of competitive advantages

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Al-Dawaa (4163.SE)

  Direct analysis target, facing earnings pressure and competitive challenges

  Strengths

  Saudi Arabia's second-largest pharmaceutical retailer, participation in Wasfaty platform drives traffic, new verticals offer growth potential

  Weaknesses

  Facing intense competition, significant operational cost pressures, unproven value in new businesses

  Comparison

  Performance weaker than competitor Nahdi, which posted 8% EBIT growth and 11% net profit growth in Q4

  Risks

  Intensifying competition, weak consumer environment, Wasfaty platform competition, lower margins in wholesale and logistics businesses

Key data

• Q4 Revenue1683 million Saudi RiyalsDown 1.0% year-over-year, 5.7% below expectations
• Q4 EBIT106 million Saudi RiyalsDown 14.4% year-over-year, 27.9% below expectations
• Q4 Adjusted Net Profit68 million Saudi RiyalsDown 20.6% year-over-year, 39.3% below expectations
• Gross Margin34.8%Down 67 basis points year-over-year
• 2026 Expected P/E11.3x32% discount to peers Nahdi and Saudi consumer sector

Impact & implications

The report views Al-Dawaa's weak performance as reflecting increased competition in Saudi pharmaceutical retail, particularly from more participants on the Wasfaty platform. The company needs to demonstrate value creation in new verticals while controlling operational cost pressures to achieve earnings recovery.

Risks

• Intensifying competition leading to margin or sales density decline
• Weak consumer environment
• Competition from other pharmaceutical retailers on Wasfaty platform
• Lower margins in wholesale and logistics businesses

What to watch

• Management's explanation of revenue decline drivers
• Whether operational cost inflation can be controlled
• Wasfaty market share trends
• Potential for revenue reacceleration