Eco-Shop profits from rising demand for affordable products
PETALING JAYA: Eco-Shop Marketing Bhd 's slower same store sales growth is outweighed by its strong gross profit margin expansion, analysts say.
In Eco-Shop's recently announced results for its financial year ended May 31, 2025 (FY25), gross profit margin grew by 1.8 percentage points to 28.2%. Same store sales growth, however, declined marginally by 0.4%.
RHB Research said Eco-Shop's FY25 results have surpassed expectations on strong profit margin expansion.
'We foresee the affordable goods sector continuing to grow rapidly by capitalising on the trend of consumers trading down, thanks to the wide value-for-money product range.
'With this, Eco-Shop offers earnings visibility, and, at the same time, robust earnings growth fostered by outlet expansion plans to extend its dominant market share.
'Such a scarce investment case should justify a premium valuation,' the research house said.
RHB Research has reiterated its 'buy' rating on the Eco-Shop stock with a target price of RM1.51 per share.
The target price implies a price-earnings multiple of 31 times on its FY26 earnings, higher than the sector average.
In FY25, Eco-Shop's revenue jumped by 16% to RM2.8bil, underpinned by 74 net new store additions.
A price increase in April expanded FY25's gross profit margin, more than offsetting the rise in operating expenditure stemming from higher minimum wages.
Correspondingly, FY25's core net profit surged 17% to RM214mil.
Quarter-on-quarter, revenue for the fourth quarter of FY25 (4Q25) dipped 6% to RM689mil after volume declined in reaction to the price increase.
Consequently, 4Q25 core net profit fell 9% to RM57mil as gross profit margin expansion after one-and-a-half-months of higher prices was insufficient to offset the topline weakness and higher operating expenditure.
In addition, RM5mil in expenses were incurred in 4Q25 to replace price tags, banners and billboards.
Looking ahead, RHB Research pointed out that Eco-Shop is focused on opening at least 70 new outlets per year in order to penetrate underserved markets and consolidate its market leadership in the burgeoning sector.
Meanwhile, it recently launched targeted marketing campaigns to drive footfall and sales by leveraging on its elevated gross profit margin.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
BusinessToday
11 hours ago
- BusinessToday
Kelington Poised For Share Price Re-Rating After Major European Win
RHB Investment Bank Bhd (RHB Research) has maintained a BUY call on Kelington Group with a revised target price of RM5.40 from RM4.30, representing a 28.6% upside and a dividend yield of about 3%. The research house said its valuation includes a 6% ESG premium, based on 26 times FY2026 forward earnings, in line with the historical KLTEC mean. The upgrade follows Kelington's receipt of a Letter of Intent for a maiden semiconductor hook-up contract in Dresden, Germany, worth up to €50 million (RM244 million). According to RHB Research, this marks the group's first foothold in Europe and is expected to catalyse further share price re-rating, supported by the improving risk-reward profile in the global chip sector. It added that new order wins could surpass the FY2022 record, with the latest European contract pushing year-to-date wins to about RM800 million against RM390 million in the first quarter. The Letter of Intent covers pricing structures and adjustment clauses effective until 2027, paving the way for a full contract with Kelington's existing European client. The initial phase of the project is valued at a minimum of €30 million (RM146 million), potentially rising to €50 million over two years, with further opportunities beyond that. RHB Research said the development is significant as part of Kelington's RM2.5 billion European tender book as of end-May. Looking ahead, the firm expects more positive news flow as additional tender results emerge by the third and fourth quarters, potentially lifting FY2025 order replenishments beyond the RM1.1 billion recorded in FY2024 and its earlier RM1.26 billion estimate. It has raised its FY2025 order book replenishment forecast to RM1.8 billion, leaving FY2026 and FY2027 projections unchanged. This adjustment increases core earnings forecasts by 11%, 12.7% and 4.5% for FY2025-2027, respectively. Among pending bids are a joint venture involving Taiwan's largest foundry for a new German fabrication plant valued at RM1.5 billion and a RM292 million fab tender in India. The company's tender book of over RM5 billion should sustain operations well into FY2027, the research house noted. For the upcoming second-quarter results due on 21 August, RHB Research expects Kelington to outperform its own and market estimates, forecasting revenue growth of 20%-25% quarter-on-quarter and core profit after tax and minority interest in the RM30 million to RM34 million range, up from RM26.6 million in the first quarter. Advanced engineering remains the main growth driver, contributing significantly to Kelington's RM1.43 billion outstanding order book as at March. Meanwhile, its industrial gas segment is projected to deliver a 23% revenue compound annual growth rate for FY2025-FY2027, supported by higher liquid carbon dioxide demand and a new on-site gas supply deal with an opto-electronics client in Kedah.
New Straits Times
14 hours ago
- New Straits Times
Telco revenue momentum expected to stay weak in second half
KUALA LUMPUR: The telecommunications sector is expected to remain sluggish in the second half of 2025, as mobile network operators (MNOs) continue offering affordable connectivity amid rising cost pressures. RHB Research said average revenue per user (ARPU) is likely to remain under pressure, with telcos extending rebates and promotions to retain customers in an increasingly competitive market. "The pressure on industry ARPUs should stay elevated with rebates offered," it said in a note. "Overall, we believe the rise in 5G wholesale charges (on higher 5G traffic) and inflation-led operating expenditure pressures should weigh on industry earnings before interest, taxes, depreciation, and amortisation (Ebitda) despite the good cost restraint exercised by the MNOs." RHB Research said the key developments anticipated by year-end is the full exit of the government from Digital Nasional Bhd (DNB). The firm expects Maxis Bhd and CelcomDigi Bhd to exercise their put options to acquire the Finance Ministry's 41.7 per cent stake in the national 5G wholesaler, resulting in an equal ownership structure between Maxis, CelcomDigi and YTL Communications. With this change, the 5G operating model is expected to shift, potentially triggering a review of the existing wholesale pricing structure. Meanwhile, the mandatory standard on access pricing (MSAP), which governs broadband pricing, is up for review by end-2025. "However, based on the previous rhetoric and the already competitive broadband pricing landscape, we think adjustments to access prices would be manageable and rates commercially negotiated. "We think it is possible that the regulator extends the validity of current access prices (2023-2025) while adding 5G wholesale rates (currently not regulated) into the access list," the firm added. RHB Research added that the commencement of JENDELA Phase 2 in September, along with the rollout of the second 5G network, is expected to benefit tower companies and infrastructure providers such as OCK Group, Reach-Ten Holdings, and Redtone International. Meanwhile, Axiata Group Bhd, which saw its share price rebound from multi-year lows in April, is gaining investor attention amid expectations of a potential asset monetisation within three to nine months. "Successive news flow on potential asset monetisation saw Axiata's share price recover from multi-year lows in April." The firm estimates edotco, Axiata's tower unit, could be valued at between RM4.2 billion and RM8.3 billion, based on an 8–12 times enterprise value/EBITDA multiple.
The Star
17 hours ago
- The Star
Water stocks to make a splash on tariff hike
PETALING JAYA: Water infrastructure-related stocks stand to gain from the government's revision of water tariff rates for nearly all of Peninsular Malaysia and Labuan, as higher revenue enables upgrades to ageing infrastructure. BIMB Securities said the long-overdue reform, which came into effect on Aug 1, may only be the first step. The national average domestic tariff of RM1.54 per cubic m across all bands still falls short of the average water treatment cost of RM1.89 per cubic m, based on the 2023 data from the Water Services Commission. 'While the latest revision helps narrow the deficit, full cost recovery is still elusive, suggesting room for further rationalisation ahead,' BIMB Securities said, noting that the change narrows the cost-recovery gap and re-establishes commercial viability for long-term infrastructure investments. It pointed out that Johor alone requires an estimated RM6.8bil in capital investment by 2030 to reduce non-revenue water (NRW), meet rising demand and ensure long-term supply resilience, according to the roadmap outlined by Ranhill SAJ Sdn Bhd, an 80%-owned subsidiary of Ranhill Utilities Bhd . The research house added that the upward revision reinforces the financial sustainability of the water sector by enhancing returns on regulated assets and improving cash-flow visibility for concessionaires such as Ranhill SAJ, Pengurusan Air Selangor Sdn Bhd and Perbadanan Bekalan Air Pulau Pinang Sdn Bhd. BIMB Securities has a 'buy' call on Gamuda Bhd , with a target price (TP) of RM6.05. Other stocks that stand to gain from the tariff revision include Engtex Group Bhd , Taliworks Corp Bhd and Hiap Teck Venture Bhd , given their involvement in treatment plant construction, NRW-reduction projects and pipeline upgrades. However, BIMB Securities does not cover the latter three companies. Meanwhile, RHB Research has maintained a 'buy' call on Ranhill, raising its TP to RM1.70 from RM1.37. Ranhill SAJ has also announced a new set of water tariffs effective Aug 1 for all types of users, including a new tariff category for data centres (DCs). The research house estimated that an additional 300MW in DC capacity will come online annually over the next six years. 'Our estimates indicate that DC water consumption is roughly 8% to 15% of the non-domestic water usage in the next three years,' it said. As a result, RHB Research has revised its earnings estimates upward for the financial years ending June 30, 2026 (FY26), and FY27 by 15.3% and 23.4%, respectively,. It also raised its water consumption growth assumption for Ranhill SAJ to 4% (from 3.5%) from FY30 onwards, citing strong demand from completed DCs and the Johor-Singapore Special Economic Zone.
