Eco-Shop’s RM420 Million IPO: Malaysia’s Discount Retail Giant Sets Sights on Expansion

 IPO Details

• Purpose of IPO: Eco-Shop aims to raise approximately RM419.87 million through the issuance of 347 million new shares. The proceeds are allocated as follows:

  • RM56.27 million (13.4%) for expanding its retail footprint nationwide.

  • RM200 million (47.6%) to expand distribution centers.

  • RM10.9 million (2.6%) for IT hardware and software investments.

  • RM100 million (23.8%) to repay bank borrowings.

  • RM52.7 million (12.6%) for working capital and IPO-related expenses.

• Oversubscription: The IPO experienced mixed demand. The retail Bumiputera portion was under-subscribed, while the overall retail portion was oversubscribed by 0.96 times for the 114.94 million shares allocated to Malaysian retailers.

• Dividend Commitment: As of the IPO, Eco-Shop has not declared any dividends.

 IPO Placement and Outstanding Shares

• Shares Offered: 347 million new shares at RM1.13 per share.

• Outstanding Shares Post-IPO: Approximately 5.747 billion shares.

• Market Capitalization: Approximately RM7 billion based on the IPO price.

Given the substantial market capitalization and the company’s dominant position in the discount retail sector, the IPO is poised for a strong debut.

Institutional and Anchor Investors

• Cornerstone Investors: Eco-Shop secured 10 cornerstone investors, including AHAM Asset Management and Albizia Capital, who collectively subscribed for 90.91 million shares, representing 90.31% of the institutional offering (excluding the Bumiputera portion).

• Pre-IPO Share Sales: Private equity firm Creador reduced its stake from 10% to 1.9% to meet Bursa Malaysia’s public float requirement of 15%.

 Investment Banker, Underwriter, and Sponsors

• Principal Adviser and Sole Underwriter: Maybank Investment Bank Bhd

• Joint Global Coordinators and Bookrunners: Maybank Investment Bank Bhd and UBS

• Joint Bookrunner: RHB Investment Bank.

The involvement of prominent financial institutions underscores the credibility and potential success of the IPO.

Company Overview

• Business Model and Industry: Eco-Shop operates a fixed-price retail chain, offering a wide range of non-grocery products priced at RM2.60 in Peninsular Malaysia and RM2.80 in East Malaysia. The company operates 358 stores nationwide.

• Financial Health:

  • Revenue: Increased from RM1.574 billion in FY2022 to RM2.404 billion in FY2024.

  • Gross Profit Margin: Improved from 19.6% in FY2022 to 26.4% in FY2024.

  • Profit Before Tax Margin: Increased from 2.5% in FY2022 to 10.1% in FY2024

• Market Position: Eco-Shop commands a dominant 67.8% market share in Malaysia’s discount retail segment.

• Management Team:

  • Founder and Managing Director: Datuk Seri Lee Kar Whatt.

  • Chairman: Wah Kiang Chan.

  • Directors: Thai Foong Chen and Ying Lum.

6. Market and Economic Factors

• Sector Trends: The affordable retail segment in Malaysia has experienced significant growth, with sales increasing from RM1 million in 2016 to RM4 million in 2024, representing a CAGR of 19.6%. The segment is projected to grow by 14.2% from 2024 to 2029.

• Timing of IPO: Eco-Shop’s IPO is the largest in Malaysia over the past eight months, indicating strong investor interest in the retail sector.

• Economic Environment: Malaysia’s economy is projected to grow between 4.8% and 5.3% in 2025, providing a favorable backdrop for retail businesses.

• Risk Factors:

  • Economic Sensitivity: Discount retailers are vulnerable to inflation and unemployment spikes.

  • Competitive Pressure: Rivals like Mr. DIY Group could intensify price wars.

  • Founder Dependency: Post-IPO, the founder’s stake drops to 73.9%, but his influence over operations could pose governance risks.

• Growth Strategy: Eco-Shop plans to open 70 new outlets annually over the next five years, aiming to double its store count.

• Ownership Structure: Post-IPO, founder Datuk Seri Lee Kar Whatt will hold a 73.1% stake, while Creador’s holding will be reduced to 1.9%.

📊 Financial Metrics Comparison

Analyst Opinions

• TA Securities: Assigned a target price of RM1.28 per share, based on a target P/E ratio of 25.4x for CY2026 EPS.

• Malacca Securities: Forecasts a 14.0% CAGR for Eco-Shop’s earnings over the next three years, driven by aggressive store expansion plans.

IPO Allotment Result

• Retail Portion: Oversubscribed by 0.96 times for the 114.94 million shares allocated to Malaysian retailers.

Investment Recommendation and Price Estimate

Given Eco-Shop’s strong market position, robust financial performance, and aggressive expansion plans, the IPO appears to be a promising investment. However, the high P/E ratio of 39.2x suggests that the stock is priced at a premium, which may limit immediate upside potential. Investors should consider their risk tolerance and investment horizon before subscribing.

Prospectus Download

The IPO prospectus can be downloaded from the Securities Commission Malaysia’s website: Eco-Shop Marketing Berhad Prospectus

• Eco-Shop Marketing Berhad Prospectus

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