Value for your ringgit

AS inflationary pressures rise in Malaysia, investors are increasingly turning their attention to value retail chain Eco-Shop Marketing Bhd. Its stock is up 24%, from RM1.21 to RM1.50, since early June.

As AmInvestment Bank (AmInvest) Research describes it, cost-of-living pressures are slowly setting in.

The research house believes the headline consumer price index is masking the actual squeeze that people are feeling, particularly in categories that dominate household budgets.

With housing, furniture and household goods, and food running ahead of reported inflation, Eco-Shop’s flat RM2.60 ticket is the answer for many.

However, Eco-Shop’s value since its listing isn’t overly phenomenal as the stock listed last May at RM1.13 a piece, meaning it is only up by around 30% since then.

When Eco-Shop increased the price of its items back in April last year, from RM2.40 a piece to RM2.60, that had an impact on same-store-sales-growth (SSSG), which in turn spooked some investors.

In the first quarter of 2026, sales were down 12.7%.

However, it seems like customers have adjusted to the new pricing.

When it was first founded in 2003, the company launched with a fixed-price model of RM2 per item at its very first store in Gemas, Johor.

Over the years, due to rising operational and inflationary costs, that base price has gradually adjusted upwards.

In its most recent results, Eco-Shop posted a higher net profit of RM72.62mil for the fourth quarter ended May 31, 2026.

This was on the back of RM772mil in revenue.

What Eco-Shop did was increase the price slightly, so that even if fewer items were sold, each item still contributed to profits.

And it has the number of stores to support it.

According to its website, Eco-Shop has more than 350 outlets across the country, inclusive of all its Eco Shops and Eco-Plus Concept stores.

This year, it plans to open another 100 while committing to 70 new outlets annually.

It also allocated RM228mil in capital expenditure to strengthen its warehouse capabilities, looking to increase throughput capacity to 12.3 million pieces by the end of this financial year from 4.5 million pieces as at March 31, 2025.

Eco-Shop also has its own in-house brand products.

Walk into any Eco-Shop and one would find a variety of items, from baby and kids, stationery, food, home and living and pet care among others – and all of them are in-house brands.

It’s a smart move by Eco-Shop – allowing it to control pricing, differentiate offerings while improving margins.

Its gross profit margins increased to 34.5% from 31.9% in its recent earnings announcement, backed by stronger ringgit procurement costs and supplier- rebate reclassification.

Analysts seem to be positive on Eco-Shop’s future, noting that the value retail segment is likely to keep growing.

Moderating inflation and a steadier economy have yet to alter consumer behaviour, with many shoppers continuing to seek value at retailers like Eco-Shop.

This is unlikely to change soon – penetration in Malaysia is said to be at 23 stores per million people.

That’s actually fairly low, compared to countries like the United States, Japan and Canada.

MBSB Research says value retail has been a consistent theme in Malaysia, and is structural rather than cyclical.

This is evidenced by a value- first shopping approach seen in “pasar malam”, “mamak” and sundry shops.

“The real tailwind is the migration of spend from informal, fragmented value channels into organised retail. We do not believe wage gains will reverse it as value habits tend to stick.

“While Malaysian consumers do engage in aspirational spending, it is typically in other product categories,” the research house tells StarBiz 7.

MBSB Research cites MR DIY Group (M) Bhd and 99 Speed Mart Retail Holdings Bhd, alongside Eco-Shop, as examples of businesses that followed a similar model and grew into large multi-chain networks.

Speaking of competition, the research house reckons that as the three brands push into the same underpenetrated corridors, market share might be constrained.

99 Speedmart is rapidly adding 250 outlets each year, and has ventured to Fuzhou, China.

MR DIY, on the other hand, is already in a number of foreign countries but is looking at expanding into underpenetrated areas in Sabah and Sarawak.

“National saturation is not a near-term risk given the still-fragmented informal base.

“The constraint is that all three players are pushing into the same underpenetrated corridors at once, so catchment-level cannibalisation and competitive intensity rise even while national white space remains,” MBSB Research opines.

So is Eco-Shop capable of hanging on to its elevated margins?

The research house reckons that for now, it should be able to, although the quality of those margins will depend on in house-brand mix, sourcing and operating leverage.

“With about 50% of costs of goods sold in yuan, ringgit swings can have significant impacts on net profit roughly, so current margins may be flattered by ringgit strength and would run in reverse on ringgit weakness.

“Because the price is fixed at RM2.60, competition may show up as bigger packs, better products or heavier promotions rather than visible price cuts, which could still impact margins,” MBSB Research notes.

In a number of reports, analysts have partly priced in wage and operating expenditure (opex) inflation into their forecasts.

“Because Eco-Shop can only pass through cost in infrequent, visible anchor resets rather than continuously, a sharp ringgit move can feed straight into earnings. Intra-network cannibalisation as store counts compound is the second risk we would rank above generic opex inflation.”

UBS Global Research, in a report, said it maintained a “neutral” rating on the stock with a target price of RM1.60, which implies financial year 2026 price-to-earnings ratio of 36.9 times.

It did note that risks could arise from rising wages and logistical expenses, an overreliance on imports and currency fluctuations.

Nevertheless, UBS agreed that Eco-Shop’s aggressive store expansion and its in-house brand portfolio could bode well for the company.

Going by Bloomberg data, there are nine calls on the stock, eight of which calling it a “buy”. The consensus 12-month target price for the stock is RM1.77.