PETALING JAYA: The Middle East conflict and associated cost spillovers are expected to have a mild near-term impact on margins for Eco-Shop Marketing Bhd
.
Freight and logistics costs have risen by 20%, alongside higher packaging costs and the repricing of 250 stock-keeping units, said UOB Kay Hian (UOBKH) Research.
“This collectively amounts to RM900,000 per month and translates to an estimated 0.4 percentage point drag on gross margins,” it added.
Following the Middle East conflict, Eco-Shop’s valuations have de-rated by about 20%.
UOBKH Research believes this already more than factors in sentiment-driven weakness and potential cost pressures, presenting an attractive entry point.
It values Eco-Shop at 34.5 times 2026 price earnings ratio, also the average valuation for 99 Speed Mart Retail Holdings Bhd (38.9 times) and MR DIY Group (M) Bhd (30 times).
However, 99 Speed Mart does deserve a valuation premium given its index-linked status and superior capital efficiency.
“Eco-Shop merits a premium to MR DIY for the former’s more compelling growth trajectory from a significantly lower store base,” added UOBKH Research.
It upgraded the stock to a “buy” with an unchanged target price of RM1.70 a share.
The key risks cited include the strengthening of the yuan against the ringgit and a sharp deterioration in consumer sentiment.
RHB Research retains its “buy” call with a new target price of RM1.80 from RM1.85 a share. The risks cited include reputational risks and major delays in expansion plans.
The shares were last traded at RM1.32.
It said Eco-Shop’s nine-month financial year 2026 (FY26) results met expectations thanks to robust new store openings and gross profit margin expansion.
The dollar store industry should continue rapid growth by capitalising on consumer downtrading trends, thereby providing a long expansion runway for the company.
Its favourable same-store sales growth base effect should start kicking in by fourth quarter of FY26 (4Q26).
Its gross profit margin should hover at the 3Q26 levels as the increasing scale of operations, favourable foreign exchange and rising house brand contribution partially mitigate the impact of higher freight and input costs (about RM1mil per month) escalated by the Middle East conflict.
The margin buffer should put Eco-Shop in a strong position to hold its prices amidst cost inflation, potentially reversing the negative impact of the price increase by closing the price gap versus non-dollar store competitors should the latter opt for cost pass-through.
