Eco-Shop's premium valuation backed by growth – RHB IB

KUALA LUMPUR: Eco-Shop Marketing Bhd’s aggressive promotion strategy and outlet expansion are expected to lift sales growth and support its premium valuation, said RHB Investment Bank Bhd (RHB IB).

The company has rolled out initiatives such as the “Sama Bantu” campaign, which brought selected food and beverage prices back to RM2.40, and purchase-with-purchase deals.

RHB IB said these efforts have proven effective in drawing value-conscious shoppers. The research house maintained a “Buy” call on Eco-Shop with a target price of RM1.51, implying about 13 per cent upside from its current price.

“After recording negative same-store sales growth (SSSG) in the fourth quarter, Eco-Shop has embarked on a more aggressive marketing drive that has worked effectively to attract consumers.

“We anticipate an encouraging improvement to SSSG trends going forward,” analyst Soong Wei Siang said in a research note.

He added that Eco-Shop is maintaining its five per cent SSSG target, supported by stronger marketing efforts and improved stock availability.

Malaysia’s largest dollar-store chain, with 371 outlets, has also secured more than 70 new locations and plans to refurbish about 20 older outlets with refreshed layouts by year-end.

“Such efforts should lift store productivity and potentially drive SSSG further if results are encouraging,” Soong said.

Meanwhile, 159 Eco-Shop stores have been enabled for the government’s Sumbangan Asas Rahmah programme, though the sales impact so far has been modest as consumers continue to favour hypermarkets and mini-markets for redemptions.

RHB IB noted that Eco-Shop’s gross profit margin expansion of 4.7 percentage points year-on-year in the fourth quarter should cushion the impact of new costs.

This includes the Sales and Service Tax on rentals and higher Employees Provident Fund contributions for foreign workers starting October.

“Eco-Shop offers earnings visibility and robust growth. Such a scarce investment case should justify its premium valuation,” it said.

© New Straits Times Press (M) Bhd

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