Eco-Shop Marketing (ECOSHOP MK): A Remedy To The Rising Cost Of Living; BUY

• Initiating coverage with a BUY and MYR1.51 TP, 15% upside and c.2% FY26F (May) yield. The nascent dollar store industry will continue to prosper as penetration rates pick up to meet rising demand. This retail model offers a comprehensive range of value-for-money products that appeal to increasingly cost-conscious consumers amidst rising living costs. As the dominant market leader, Eco-Shop Marketing is aiming to capture untapped market opportunities, focusing on outlet expansion, driving robust SSSG, developing house brands, and continuously refining operational efficiency metrics.
• Beneficiary of Malaysia’s macroeconomic tailwinds. According to Frost and Sullivan, the dollar store industry will grow at a 2024E-2029F CAGR of 14%, outpacing the 6% of overall store-based retail sales. This suggests a switch in consumer preference towards the dollar store format given the inflationary environment, thanks to the affordability advantage of the flat-price model. In addition, the relatively faster income growth within the lower-income groups ie the bulk of the customers has also accelerated the shift. That said, the penetration rate of dollar stores in Malaysia still significantly lags behind that of mature markets – indicating the ample headroom for expansion.
• Aggressive network growth to drive penetration. ECOSHOP’s ambitious expansion plans entail the opening of at least 70 net new stores pa, supported by raising of distribution throughput capacity. The mushrooming store network will allow the group to capitalise on the rapid industry growth and the resultant growing operational scale will raise the barrier of entry, thereby fortifying its market position. Consequently, its entrenched fundamentals in insourced distribution capabilities, differentiated merchandising strategies and crowd-pulling house brands will be further enhanced to drive sustainable profitability through improving operating leverage whilst maintaining the ultra-affordable price points.
• Forecasts and valuation. We forecast a 3-year earnings CAGR of 18% for ECOSHOP, underpinned by store expansion, robust SSSG and growing economies of scale. Our DCF-derived TP of MYR1.51 (inclusive of a 4% ESG premium) implies a 2026F P/E of 31x is between the implied valuations of 99 Speed Mart Retail Holdings (99SMART MK, BUY, TP: MYR2.45) and Mr DIY Group (MRDIY MK, BUY, TP: MYR1.87). We believe the rich premium valuation is warranted and justifiable by: i) Consumer sector’s resilient appeal under the current market environment, ii) its position to capitalise on consumer downtrading trends, and iii) growth potential of the nascent dollar industry.
• Risks to our recommendation include major delays in expansion plans, FX fluctuations and a sharp rise in input costs.

Forecasts and Valuation

Source: Company data, RHB

Emissions And ESG

Latest ESG-Related Developments

ECOSHOP promotes energy efficiency through initiatives like LED lighting and passive building design at its Jementah Distribution Centre.

It enhances emissions management by optimising logistics routes and adding low-emission vehicles with AdBlue technology.

The group also supports waste reduction by eliminating plastic bags and complying with environmental regulations without any recorded breaches.

ESG Unbundled

Overall ESG Score: 3.2 (out of 4)
Last Updated: 24 July 2025

E Score: 3.0 (GOOD)
ECOSHOP promotes sustainability through energy-saving initiatives, efficient logistics with low-emission vehicles, and waste reduction efforts like eliminating plastic bags, all while complying with environmental regulations.

S Score: 3.3 (EXCELLENT)
ECOSHOP promotes inclusive hiring, continuous employee training, and workplace safety. It supports communities through CSR efforts, ensures product quality, and enhances customer experience through service excellence and loyalty programmes.

G Score: 3.3 (EXCELLENT)
ECOSHOP upholds strong governance through anti-corruption policies and MCCG compliance. It enhances supply chain efficiency via digital systems, prioritises local sourcing, and safeguards customer data through robust privacy measures.

Financial Exhibits

Source: Company data, RHB

Valuation

We initiate coverage on ECOSHOP with a BUY recommendation and TP of MYR1.51 (inclusive of a 4% ESG premium), derived from our DCF model (Figure 1). This is consistent to the valuation methodology for similar consumer stocks under our coverage which we believe will be able to reflect the group’s multi-year growth prospects effectively. Corroboratively, the TP implies 31x 2026F P/E.

Figure 1: DCF valuation

Source: RHB

Our DCF assumptions:

• Risk-free rate: 4.0%, in-house assumption;
• Market risk premium: 5.5%, in-house assumption,
• Market returns: 9.5% (i)+(ii),
• Beta: 0.6x – average of consumer stocks under our coverage;
• Terminal growth of 2%, higher end of the consumer stocks under our coverage
• Cost of equity: 7.3%, (ii)*(iv)+(i),
• Cost of debt: 4%, in line with current cost of debt;
• Debt to equity ratio: 10:90, in line with FY26F;
• WACC: 6.9%, based on (vi), (vii), and (viii).

Peer Comparison

Locally, there is no like-for-like listed dollar-store operator to be directly benchmarked against. We note that AEON is one of the local operators of Daiso, the Japanese flat-price store chain but AEON’s earnings are predominantly driven by the rental incomes under its property management segment. Meanwhile, Mr DIY launched its dollar store brand – Mr Dollar in 2020 but the venture has yet to contribute positively to the group.

Inevitably, we believe investors will draw comparison or reference to 99 Speed Mart and Mr DIY, the two large-cap domestic consumer retail companies and market leaders of their respective industries. The recommended implied P/E range for ECOSHOP will slot in between the implied valuations ascribed to 99 Speed Mart (33x P/E FY26F) and Mr DIY (25x P/E FY26F).

Figure 2: Comparison among largest listed local retailers (operation details)

Note: *Based on latest available data
Source: Company data

Investment Merits

Promising growth prospects on offer.

We forecast ECOSHOP to chart a 3-year earnings CAGR of 18% and hit MYR294m in FY27F, primarily underpinned by robust outlet expansion. We assume new outlet addition of 80 stores pa in FY25F-27F, marginally above management’s target as in our view, there are plenty of untapped opportunities for the group to capitalise on. According to Frost & Sullivan, with Malaysia’s population projected to reach 35 million by mid-2028 and assuming 25,000 customers served per store, the market could support approximately 1,400 dollar stores – roughly twice the current number in the country.

A rapid growing industry with tremendous potential.

According to Frost & Sullivan, Malaysia’s dollar store market sales are projected to grow by a CAGR of 14.2% in 2024-2029F – outpacing the 6.1% growth of the overall store-based retail industry. Looking ahead, the business model, in offering a wide range of value-for-money products, will continue to appeal to the cost-conscious B40 and M40 groups.

Conquering the dollar store arena.

ECOSHOP dominates Malaysia’s dollar store industry with a 68% revenue share as of 2024, leaving the closest competitor far behind at 12.1%. By operating 349 stores in Malaysia as of Feb 2025, the extensive network provides the group with significant economies of scale, enabling it to negotiate favourable terms with suppliers for exclusive products and competitive pricing, setting it apart from competitors.

Broad product offering inducing unplanned purchases.

Amid rising living costs and inflationary pressures, businesses offering value-for-money products are seeing increased demand as consumers shift toward the more affordable options. ECOSHOP is well-positioned to benefit from this trend, offering a broad product assortment at competitive prices, with 5,000 to 13,000 stock keeping units (SKUs) that balance essential consumables with discretionary items.

The recipe of the low-cost model.

The key attraction of Eco-Shop as a brand lies in the compelling value it offers with all products being priced at MYR2.60 for stores in Peninsular Malaysia and MYR2.80 for stores in East Malaysia and Langkawi. This model is made possible and supported by the end-to-end internal distribution and logistics network with two in-house distribution centres and a fleet of over 160 trucks, which optimises unit costs. Currently, 29 house brands make up 74.8% of its SKUs and 56.3% of FY24 sales, with management targeting an increase to 57% by FY25F.

Financial Overview

Revenue projection.

We project a 3-year revenue CAGR of 18%, surpassing MYR4bn by FY27F (FY25F-27F: 20%, 22%, 15%). This growth will be primarily driven by the expansion of new outlets, assumed at 80 outlets pa for FY25-27F. We bake in SSSG of 3.5%, 10%, and 5% for FY25F-27F, respectively, broadly in line with the group’s targeted sustainable SSSG of 5-6%.

GPM and other operating income assumption.

We forecast GPM to expand to 27.4%, 29.2%, and 29.6% for FY25F-27F, up from 26.4% in FY24, driven by the price increase, rising contribution from higher margin house brands, and greater economies of scale. To mitigate FX volatility, ECOSHOP hedges c.50% of its CNY-denominated purchases.

Opex.

Opex should see an increasing trend to reflect the higher minimum wage (from MYR1,500 to MYR1,700) effective Feb 2025. The additional costs should be more than mitigated by the price increase that we pencil in to our earnings forecasts. The 20 sen or 8% increase in ASP will translate into additional gross profit of c.MYR90m, based on FY26F revenue of MYR3.5bn.

Effective tax rate (ETR) and core earnings.

All in, we project a 3-year net profit CAGR of 18%, reaching MYR294m in FY27F (FY25F-27F: 15%, 26%, 15%) – underpinned by sustained topline growth, increasing scale, and operating leverage, we expect net margin to expand. We assume an ETR of 27%, slightly above the statutory 24%, to account for non-tax deductible expenses – in line with management guidance.

Cash flow projection.

Operating cash flow will remain healthy going forward at MYR356m-470m, growing in tandem with profit. We assume capex of MYR136m, MYR331m, and MYR146m for FY25F-27F, primarily for new store expansion and distribution centre. As for dividends, ECOSHOP targets a payout ratio of 40-60% of PATAMI. We forecast DPS of 1.8 sen, 2.2 sen, 2.6 sen for FY25F-27F by assuming a payout ratio of 50%.

Balance sheet profile.

ECOSHOP had a low gearing ratio of 0.05x as of FY24. Notwithstanding the heavier capex commitment going forward, we expect it to transition into a net cash position in FY26F-27F, supported by robust earnings growth, healthy operating cash flow and equity raising. Meanwhile, ROAE is expected to moderate from 33% in FY24 to 24-26% in FY25F-27F, reflecting the enlarged equity.

Figure 13: Earnings sensitivity

Source: Company data, RHB

Key Risks

• Brand and reputation risk. The success of ECOSHOP’s business is dependent on the “Eco-Shop” and “Eco-Plus” brands and its reputation. Any adverse impact on the perception or value of these brands or its reputation may materially and adversely affect its business, financial condition, results of operations, and prospects.
• Product quality and compliance issues. Any material issue with the quality of ECOSHOP’s products or non-compliance with regulatory requirements could adversely affect its business. The group is subject to product registration, certification, and regulatory requirements.
• Property compliance and use issues. ECOSHOP’s properties are subject to various land use, licensing, and compliance certification requirements. Any breach may result in its inability to use these properties.
• Tenancy agreement termination risk. The termination or non-renewal of tenancy agreements for the Klang Distribution Centre and stores may have an adverse impact on ECOSHOP’s business operations.
• Business growth execution. ECOSHOP’s growth strategy focuses on expanding within Malaysia. Its growth requires resources like funding, merchandise, employee recruitment, and store locations. New stores may not be immediately profitable.
• Pricing strategy risk. As a result of increases in costs and expenses, ECOSHOP marked up the selling price of products at its stores. There is no assurance that cost increases will be offset by sourcing competitive products, operational efficiency, or higher sales.
• FX fluctuation. A substantial number of ECOSHOP’s end-suppliers are located outside Malaysia, and it makes payments for imports primarily in CNY. The group is exposed to FX rate fluctuations. Significant fluctuations may adversely affect its financial condition and results of operations.