ECOSHOP: Retailer’s Earnings Outperform on Strong Margins and Expansion

A leading retailer has delivered a strong financial performance for the first half of FY26, with core net profit exceeding expectations. This robust outcome was primarily driven by significant gross profit margin expansion and strategic store growth. The positive momentum is anticipated to continue, supported by a robust expansion pipeline and expected improvements in sales productivity.

Performance Review

For the first half of FY26 (May), the company reported a core net profit of MYR121 million, marking a 28% year-on-year increase. This figure accounted for 47-48% of both the investment bank’s and consensus full-year forecasts, indicating an outperform scenario. Revenue for the period grew 3% to MYR1.4 billion, primarily attributable to the addition of 86 net new stores, which helped offset a softer same-store sales growth (SSSG) of -12.5%. On a quarter-on-quarter basis, 2QFY26 saw a 5% revenue increase to MYR715 million, with net profit rising 5% to MYR62 million, as SSSG showed signs of bottoming out from the previous quarter’s low.

Margin Expansion Drivers

Gross profit margin expanded notably by 5.8 percentage points in 1HFY26. This significant improvement was a result of strategic price adjustments, favourable foreign exchange rates, and the reclassification of supplier rebates. The positive impact of these factors effectively outpaced the increase in operating expenses associated with the company’s aggressive store expansion. In 2QFY26, the gross profit margin further improved by 0.9 percentage points, boosted by higher supplier sponsorships and the cessation of a price discount campaign in October 2025.

Future Outlook and Growth Strategies

Management is optimistic about the future, projecting a significant improvement in SSSG to positive mid-single digits in 3QFY26. This is expected to be fueled by a more targeted promotion strategy aimed at increasing basket size, the introduction of 300 new SKUs monthly, and enhanced store productivity. Furthermore, supply chain disruptions related to resizing and repackaging have largely been resolved. The company anticipates further gross profit margin expansion, especially with the discontinuation of the “Sama Bantu” price discount promotion by October 2025 and leveraging favorable foreign exchange rates and increasing scale. A robust new store opening pipeline remains a key growth driver, with plans for 100 new stores to be launched in FY26. These expansions are strategically planned to minimize cannibalization, with approximately 90% of new stores located over 15km away from existing outlets.

Analyst Rating

In light of the strong performance and positive outlook, TA SECURITIES has maintained its BUY recommendation, raising the target price to MYR1.85 from MYR1.81. This new target price represents a 14% upside potential and implies a 34x FY2027 P/E, positioned at a discount to its large-cap consumer peers. The investment bank highlighted the industry’s rapid growth due to consumer downtrading trends, providing a long expansion runway and strong earnings visibility.