Eco-Shop profits from rising demand for affordable products
PETALING JAYA: Eco-Shop Marketing Bhd 's slower same store sales growth is outweighed by its strong gross profit margin expansion, analysts say.
In Eco-Shop's recently announced results for its financial year ended May 31, 2025 (FY25), gross profit margin grew by 1.8 percentage points to 28.2%. Same store sales growth, however, declined marginally by 0.4%.
RHB Research said Eco-Shop's FY25 results have surpassed expectations on strong profit margin expansion.
'We foresee the affordable goods sector continuing to grow rapidly by capitalising on the trend of consumers trading down, thanks to the wide value-for-money product range.
'With this, Eco-Shop offers earnings visibility, and, at the same time, robust earnings growth fostered by outlet expansion plans to extend its dominant market share.
'Such a scarce investment case should justify a premium valuation,' the research house said.
RHB Research has reiterated its 'buy' rating on the Eco-Shop stock with a target price of RM1.51 per share.
The target price implies a price-earnings multiple of 31 times on its FY26 earnings, higher than the sector average.
In FY25, Eco-Shop's revenue jumped by 16% to RM2.8bil, underpinned by 74 net new store additions.
A price increase in April expanded FY25's gross profit margin, more than offsetting the rise in operating expenditure stemming from higher minimum wages.
Correspondingly, FY25's core net profit surged 17% to RM214mil.
Quarter-on-quarter, revenue for the fourth quarter of FY25 (4Q25) dipped 6% to RM689mil after volume declined in reaction to the price increase.
Consequently, 4Q25 core net profit fell 9% to RM57mil as gross profit margin expansion after one-and-a-half-months of higher prices was insufficient to offset the topline weakness and higher operating expenditure.
In addition, RM5mil in expenses were incurred in 4Q25 to replace price tags, banners and billboards.
Looking ahead, RHB Research pointed out that Eco-Shop is focused on opening at least 70 new outlets per year in order to penetrate underserved markets and consolidate its market leadership in the burgeoning sector.
Meanwhile, it recently launched targeted marketing campaigns to drive footfall and sales by leveraging on its elevated gross profit margin.
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