PETALING JAYA: RHB Research has maintained its “buy” call on Eco-Shop Marketing Bhd
with an unchanged target price of RM1.80, citing improving same-store sales growth (SSSG), resilient consumer demand for value retailing and disciplined cost management that are expected to support a robust earnings trajectory.
The research house said it remained optimistic after meeting Eco-Shop’s management, noting that the company is well positioned to benefit from a more normalised operating environment.
“We came away from our recent meeting with Eco-Shop Marketing’s management feeling more reassured of its growth prospects,” RHB Research said in a note to clients yesterday.
It added that the retailer is poised to reverse its negative SSSG trend, thanks to the normalisation in consumer demand and stock supply.
RHB Research expects the inflationary environment to work in Eco-Shop’s favour by attracting increasingly price-conscious consumers, while enabling the retailer to regain price competitiveness against conventional retailers.
“With its operating expenditure well under control, we look forward to a robust three-year earnings compound annual growth rate of 19% ahead, and believe the stock’s current valuation is attractive.”
According to the research house, the recovery in same-store sales is already gaining momentum, supported by stronger customer traffic, effective promotional campaigns and improved inventory availability following earlier supply disruptions.
The retailer should meet its target to open 100 new outlets in the financial year 2026 (FY26), having launched 65 stores in the first nine months, while maintaining a similar expansion pace in FY27.
Refurbished outlets have also delivered encouraging results, with sales increasing by more than 10%.
On costs, RHB Research said Eco-Shop faces additional monthly expenses of approximately RM1.5mil, arising from higher input prices and freight charges linked to the Middle East conflict.
However, the research house believes the company is well positioned to absorb these pressures without raising prices.
“This could help Eco-Shop regain price competitiveness, as non-dollar store competitors are likely to pass on the higher costs to consumers, whereas Eco-Shop will maintain its pricing.”
It added that the impact on gross profit margins should be partially mitigated by product portfolio optimisation, rising contribution from house brands, expanding economies of scale and favourable foreign- exchange trends.
Operating expenses are also expected to remain stable, supported by productivity initiatives, leaner staffing levels and stronger bargaining power when negotiating rental rates.
Looking ahead, RHB expects Eco-Shop’s FY26 results, due for release on July 22, to meet expectations.
Meanwhile, despite concurring that Eco-Shop appears well positioned to deliver sustainable earnings growth over the medium term, supported by its strong value-for-money proposition, an analyst with a foreign house told StarBiz the stock’s valuation already reflects much of this optimism, trading at a premium relative to many retail peers.
“There is no doubt that Eco-Shop is one of the more compelling defensive growth stories in the consumer retail sector.
“Nevertheless, sustaining that premium will require management to consistently execute on its expansion plans, deliver a meaningful recovery in SSSG and protect margins despite rising input costs,” she said.
