UOB Kay Hian
Date of Report: Tuesday, 29 July 2025

Eco-Shop Marketing Bhd: Resilient Growth, Margin Preservation, and Strong Outlook for Malaysia’s Leading Fixed-Price Retailer

Overview: Eco-Shop Marketing Bhd Maintains Strong Momentum Despite Headwinds

Eco-Shop Marketing Bhd, Malaysia’s top fixed-price retailer, continues to outperform expectations even as it navigates a challenging consumer environment. The company’s 4QFY25 results highlight its adaptive pricing strategy, robust store expansion, and disciplined margin management, positioning it as a sector standout with a projected three-year profit CAGR of 15.1% (FY25-28).

Stock Snapshot and Performance

• Share Price: RM1.35
• Target Price: RM1.65 (Revised upward from RM1.45)
• Upside Potential: +22.2%
• GICS Sector: Consumer Discretionary
• Market Cap: RM7,758.5 million (US\$1,835.5 million)
• Shares Issued: 5,747 million
• 52-week High/Low: RM2.26/RM1.28
• Major Shareholders: Dato’ Sri Lee (75.9%), Creador (1.9%)

4QFY25 Results: Margin Resilience Amid Price Hikes

Despite a price hike prompted by cost pressures, Eco-Shop saw only a moderate dip in sales, handily beating both internal and consensus earnings forecasts.

• Revenue: RM689.0 million (-6.4% qoq, +7.5% yoy)
• Gross Profit: RM220.1 million (+6.7% qoq, +26.1% yoy)
• EBITDA: RM108.3 million (-12.8% qoq, -9.7% yoy)
• Profit Before Tax: RM68.2 million (-19.6% qoq, -20.9% yoy)
• Core PATAMI: RM55.9 million (-10.2% qoq, -8.2% yoy) – Above expectations
• Gross Margin: 31.9% (up 3.9ppt qoq, 4.7ppt yoy)
• EBITDA Margin: 15.7% (down 1.1ppt qoq, 3.0ppt yoy; stable after adjusting for IPO expenses)

The company’s performance is especially notable given that comparable store sales growth (SSSG) contracted by -8.0% in the quarter, dragging full-year SSSG to -0.4%. However, the store base expanded by 25% year-on-year to 371 outlets, offsetting weaker store-level sales.

Key Financials: Steady Growth and Strong Profitability

Growth Drivers: Store Expansion, Price Adjustment, and Government Initiatives

• Network Expansion: Store count grew 25% yoy (371 stores at 4QFY25, up from 297).
• Price Increase: Average Selling Price (ASP) raised to RM2.60 from RM2.40 in April, cushioning cost pressures.
• Government Assistance: 168 stores are MyKasih-enabled, with ongoing discussions to expand across the entire network.
• Marketing & Store Refresh: Enhanced promotional activities and refurbishments planned for 20 stores, targeting SSSG improvement of 3-15%.
• Conservative Projections: Management expects FY26 SSSG of +3-5%, but analyst projections remain cautious at 1.5%.

Margin Outlook: Sustained by Strategic Price Actions

Eco-Shop’s gross margin improved significantly, expanding to 31.9% in 4QFY25, primarily due to the April price hike, a favorable product mix, and a stronger ringgit versus renminbi. Although the minimum wage increase affected headline operating margins, adjusting for IPO expenses shows margins were stable quarter-on-quarter.
The price adjustment has absorbed additional costs from minimum wage hikes, SST on rental, electricity, and EPF contributions for foreign workers. FY25 core margins improved to 7.6%, up 0.2ppt year-on-year.

Earnings Revision and Risks

• FY26 earnings raised by 4% due to updated sales and margin assumptions.
• Key risks: Potential ringgit depreciation against renminbi and deteriorating consumer sentiment.

Valuation and Peer Comparison

• BUY rating maintained with a higher target price of RM1.65.
• Valuation: 34.5x 2026F PE, averaging between 99Speedmart (38.9x) and Mr. DIY (30.0x).
• Relative Strength: Eco-Shop’s three-year profit CAGR of 15.1% (FY25-28) outpaces 99Speedmart (10.1%) and Mr. DIY (7.5%).
• 99Speedmart maintains a premium due to index-linked status and capital efficiency, but Eco-Shop merits a premium to Mr. DIY for growth trajectory and resilient SSSG.

ESG Initiatives: Environmental, Social, and Governance Commitment

• Environmental: Achieved a 2.5% reduction in emission intensity to 24.02 tCO2e per million revenue, despite growing from 240 to 297 stores. Initiatives include LED lighting and passive architectural designs in distribution centers.
• Social: Established Health and Safety and OSHA committees, meeting quarterly to oversee employee safety and wellness for over 6,000 staff.
• Governance: While external ESG certification is pending, disclosures are in the IPO prospectus. Financial and ESG data assured by PwC as part of the IPO process.

Margin and Growth Projections

Growth and Margin Outlook: 3-Year Financial Trajectory

Balance Sheet and Cash Flow Highlights

• Total assets: RM1,850.6 million (2025), rising to RM3,080.1 million (2028F)
• Net cash position: RM20.9 million (2025), RM44.3 million (2028F)
• Dividend payments: RM150.4 million (2025), rising to RM194.5 million (2028F)
• Net margin: 7.6% (2025), projected at 6.6% (2028F)
• ROE: 27.6% (2025), stable above 25% through 2028F

Investment Summary: Eco-Shop Remains Sector Top Pick

Eco-Shop Marketing Bhd continues to demonstrate resilience and adaptability in a competitive landscape. Its ability to preserve margins amid cost inflation, maintain strong store expansion, and deliver above-expectation earnings sets it apart from peers. With a robust financial outlook, proactive ESG initiatives, and a premium valuation justified by growth prospects, Eco-Shop is positioned as a top sector pick for investors seeking exposure to Malaysia’s growing consumer discretionary sector.

Key Metrics at a Glance (2025-2028F)

Conclusion

Eco-Shop Marketing Bhd’s performance in FY25 demonstrates its defensive sector positioning, operational excellence, and strong growth runway. With ongoing network expansion, margin-accretive pricing actions, and a commitment to ESG, Eco-Shop is well-placed to deliver attractive returns to shareholders, making it a compelling BUY for investors focused on Malaysia’s consumer sector.