Eco-Shop expected to weather cost pressures

PETALING JAYA: Retailer Eco-Shop Marketing Bhd is set for a solid performance for its financial year ending May 31, 2026 (FY26), analysts say.

This will be supported by its three-year compound annual growth rate (CAGR) in profit of 17.7% as well as its defensive positioning amid multiple emerging headwinds, said UOB Kay Hian Research (UOBKH Research).

In a report on the retailer, the research house said Eco-Shop’s profitability outlook remains intact despite cost pressures from the higher minimum wage, Employees Provident Fund (EPF) contributions for foreign workers, electricity tariffs and an expanded 8% sales and service tax on commercial rents.

“While most of these individual increases are not material to Eco-Shop’s earnings, the combined impact is estimated at RM40mil annually, or about 7.6% of FY26’s earnings before interest, tax, depreciation and amortisation,” the research house stated.

UOBKH Research said that in order for the group to mitigate the impact of costs, it had raised its fixed pricing from RM2.40 to RM2.60 in April.

This effort mirrors its 2022 strategy, when a similar adjustment led to a short-term drop in foot traffic before recovering within two months.

UOBKH Research expects a similar trend to play out with the company’s same-store sales growth (SSSG) rebounding into double digits in FY26. This will be supported by a planned store revamp.

While the fourth quarter of FY25 (4Q25) may record flattish SSSG and sequentially softer earnings to RM62.3mil due to the immediate impact of the price change and Ramadan-related seasonality, full-year earnings are expected to meet projections.

Additionally, the research house stated that the group’s aggressive store expansion further supports growth.

The group had exceeded its target with over 80 new stores opened in FY25.

“The abundance of premises and its growth off a low base have firmly positioned Eco-Shop to achieve its target of 70 new stores annually over the medium term. We also gather that it has already largely secured its sites for FY26,” it added.

UOBKH Research made no changes to its earnings estimates on Eco-Shop and maintained a “buy’ call on the retailer with a target price of RM1.45 a share.

“Despite multiple headwinds, we expect Eco-Shop’s earnings outlook to remain firmly intact,” it stated, adding that the projected three-year CAGR of 17.7% from FY24 to FY27 is nearly double than that of its peers 99 Speed Mart Retail Holdings Bhd and MR DIY Group (M) Bhd.

The research house also said it valued Eco-Shop at 34.5 times FY26 earnings, placing it between 99 Speedmart and MR DIY in terms of growth and valuation appeal.