ECO-SHOP MARKETING BERHAD Q3 2025 Latest Quarterly Report Analysis

A Quarter of Strong Growth: Q3 FY25 Highlights

ECO-SHOP’s financial results for the third quarter ending February 28, 2025, paint a picture of significant expansion and improved profitability. The company’s revenue saw a substantial increase, reflecting its growing market presence and operational effectiveness.

Looking at the core figures, ECO-SHOP’s revenue for Q3 FY25 surged by an impressive 17.2% to RM736.4 million compared to RM628.4 million in the same quarter last year. This growth was primarily fueled by the aggressive expansion of the Group’s store network, with 26 new stores opened in Q3 FY25, bringing the total store count to 349 from 278 in Q3 FY24. The company also reported a modest but healthy 0.6% increase in same-store sales growth (SSSG), indicating sustained customer engagement.

Profitability metrics also showed significant improvement. Profit Before Tax (PBT) soared by 52.2% to RM84.8 million, while Net Profit increased by 45.0% to RM61.7 million. Consequently, basic Earnings Per Share (EPS) rose by 45.6% to 1.15 sen. This enhanced profitability was partly due to an improved Gross Profit (GP) margin, which climbed from 26.0% in Q3 FY24 to 28.0% in Q3 FY25. This improvement is attributed to a more favorable product mix and the strengthening of the Malaysian Ringgit against the Chinese Yuan, which helps in procurement costs.

While selling, distribution, and administrative expenses (SDA) increased by 16.1% to RM131.1 million, driven by store expansion, staff cost adjustments (due to minimum wage revision), and one-off IPO listing fees of RM0.6 million, these expenses actually reduced as a percentage of revenue, reflecting better operational efficiency. Excluding the one-off IPO listing expenses, the normalised PBT and Net Profit would have been even higher, at RM85.4 million and RM62.3 million respectively.

Cumulative Performance: Nine Months of Solid Momentum

The positive trend extends to the cumulative nine-month period ended February 28, 2025 (FPE25), reinforcing ECO-SHOP’s strong performance throughout the financial year.

For the nine-month period, revenue grew by 19.0% to RM2.10 billion from RM1.76 billion in the corresponding period last year (FPE24). This was primarily driven by the opening of 59 new stores and a 2.1% SSSG. PBT for FPE25 jumped by 36.8% to RM212.8 million, and Net Profit increased by 35.9% to RM154.9 million. Basic EPS for the period was 2.88 sen, a 35.8% increase from 2.12 sen previously.

The GP margin for the cumulative period also improved to 27.0% from 26.1%, again benefiting from the stronger Malaysian Ringgit against the Chinese Yuan. Despite increased SDA expenses due to store expansion and one-off IPO listing fees of RM1.8 million, these costs were lower as a percentage of sales, reflecting improved cost efficiency over the longer term.

Financial Health and Cash Flow Management

Beyond the income statement, ECO-SHOP’s balance sheet and cash flow statement reflect a healthy financial position and strategic capital allocation.

Total assets grew significantly, indicating ongoing investment in the business, while total equity also increased, bolstering the company’s financial foundation. A noteworthy point is the decrease in inventories from RM384.1 million to RM336.5 million, which can indicate efficient inventory management and improved working capital. Cash and bank balances also saw a healthy increase, from RM55.2 million to RM61.7 million.

From a cash flow perspective, the Group generated a substantial RM319.0 million in net cash from operating activities for the nine-month period, a significant jump from RM78.9 million in the corresponding period last year. This strong operational cash generation supports the company’s expansion plans, including higher outflows for investing activities such as the purchase of property, plant, and equipment (RM75.1 million) and advance payments for future acquisitions (RM72.6 million). The company also strategically placed more fixed deposits, reflecting a prudent approach to liquidity management.

Strategic Outlook and Navigating the Future

ECO-SHOP remains optimistic about its future, building on its strong performance and a robust market outlook for the dollar store retail sector in Malaysia.

Opportunities and Growth Drivers:

• Sector Growth Potential: The Malaysian dollar store retail sector’s penetration is still relatively low compared to more mature markets. It is projected to grow at a compound annual growth rate (CAGR) of 14.2% from 2024 to 2029, offering a substantial runway for expansion.
• Aggressive Store Network Expansion: ECO-SHOP plans to open approximately 70 new stores per year over the next five years, particularly targeting sub-urban and rural areas to tap into underserved markets.
• Logistics Infrastructure Enhancement: To support its growing store network, the company plans to commence construction of a semi-automated distribution centre in Klang, Selangor, in Q1 2026, with completion targeted for FY27. This investment will significantly strengthen its supply chain capabilities.
• Increased Consumer Spending: With recent increases in minimum wage, the Group anticipates improving transaction counts and increased consumer spending, which should positively impact sales.

Potential Risks and Mitigation Strategies:

While the outlook is positive, ECO-SHOP is also vigilant about potential challenges and is preparing to manage various cost and risk factors:

• Rising Operational Costs: The company anticipates higher costs from the upcoming electricity tariff hike (effective July 1, 2025), the implementation of a multi-tier levy system for foreign workers, and a mandatory 2% EPF contribution for non-citizen employees. These factors could impact profit margins if not effectively managed through operational efficiencies.
• Contingent Liabilities: The report highlights contingent liabilities related to certain stores and hostels lacking required Certificates of Completion and Compliance (CCC), with an estimated maximum penalty of RM5.0 million. The company is actively taking corrective actions and initiatives to fully comply with regulations, and management believes no material losses will arise. A partial CCC has already been obtained for the Jementah Distribution Centre, and efforts are ongoing to secure the full CCC.

IPO and Capital Allocation:

A significant corporate development is ECO-SHOP’s Initial Public Offering (IPO), launched on April 29, 2025, with listing expected on May 23, 2025. The IPO involves offering up to 862,146,000 ordinary shares at RM1.13 per share. The gross proceeds of RM319.2 million from the public issue are earmarked for strategic investments:

• RM56.27 million for opening new stores (within 12 months)
• RM200.00 million for distribution centre expansion (within 12 months)
• RM8.52 million for information technology hardware and software (within 12 months)
• RM100.00 million for repayment of bank borrowings (within 3 months)
• RM27.32 million to defray IPO and listing fees (within 3 months)

This strategic allocation of IPO proceeds underscores the company’s commitment to growth, operational efficiency, and financial prudence.

Shareholder Returns: Dividends

In a positive sign for shareholders, the company declared a single-tier interim dividend of RM20 per ordinary share, amounting to RM50,145,940, for the financial year ending May 31, 2025. This dividend was declared on March 21, 2025, demonstrating the company’s commitment to returning value to its shareholders.