ECOSHOP: Strategic Expansion and Operational Efficiency Drive Rating Upgrade

A leading investment bank has upgraded its rating for a prominent dollar store chain to “BUY,” citing strong financial performance expectations, strategic expansion plans, and significant operational efficiencies. The upgrade comes as the company is set to deliver robust earnings and capitalize on a rapidly growing market segment.

Performance Highlights

The company is poised to announce solid 2QFY26 core earnings, projected to be between MYR60-65 million, reflecting a substantial year-on-year growth of 9-18%. This performance is expected to meet market expectations, driven by a combination of new outlet openings and improved gross profit margins (GPM).

This positive outlook has led the investment bank to raise its target price (TP) to MYR1.81, an increase from MYR1.63, indicating a potential upside of 16% and an estimated 2% FY27F yield. The decision to upgrade the stock to “BUY” from “Neutral” is rooted in the encouraging progress made in addressing Same-Store-Sales-Growth (SSSG) challenges and optimistic sentiment surrounding the retail sector.

Strategic Initiatives and Efficiency Gains

Following a “sensitive” SSSG reaction after a price adjustment in April 2025, the company proactively initiated a price promotion campaign for F&B products from July to October 2025. Complementing this, aggressive merchandising efforts, including the introduction of 300 new Stock Keeping Units (SKUs) monthly, have been instrumental in boosting footfall and enhancing customer experience. Management is confident that SSSG will normalize by 4QFY26.

The company’s expansion strategy has been accelerated, with the target for new store openings in FY26 increased from an initial 70 to 100 outlets. This expansion is meticulously planned to avoid cannibalisation, with approximately 90% of new stores strategically located over 15km away from existing outlets.

Furthermore, a strengthening Malaysian Ringgit (MYR) is anticipated to enhance GPM, as imports constitute about 40% of total purchases, with 97% of these imports denominated in Chinese Yuan (CNY). Operational efficiencies are also being realized through store refurbishments, with eight outlets refitted with a new design concept. Additionally, 249 outlets have been equipped with glass doors, improving store aesthetics, enhancing cooling, and contributing to electricity cost savings.

Outlook and Recommendation

Based on revised store opening assumptions, the investment bank has adjusted its FY27-28F earnings forecasts upwards by 3% and 5%, respectively. This leads to the higher DCF-derived target price of MYR1.81, which implies a 33x P/E for FY27F. This valuation premium reflects the company’s robust and sustainable growth prospects within the dollar store industry, which is expected to continue its rapid expansion by capitalizing on consumer downtrading trends.

Key Risks

Potential risks to the investment bank’s recommendation include significant delays in the company’s expansion plans and any adverse developments related to brand and reputational integrity.