KUALA LUMPUR (Oct 28): Eco-Shop Marketing Bhd (KL:ECOSHOP) hit a four-month low on Wednesday, after the company’s first quarter fell short of analysts' expectations.
The counter fell by 4.9% or seven sen to RM1.36, its lowest since July 1 this year, translating into a market capitalisation of RM7.83 billion.
Eco-Shop’s core net profit went up by 16.6% year-over-year (y-o-y) for the first quarter of its 2027 financial year ended Aug 31 (1Q2027) at RM61.9 million.
However, this falls short of analysts’ consensus expectations of 19.9%, according to CIMB Securities in a research note on Wednesday.
This was attributed to lower gross profit margins due to typhoon-related disruptions at Chinese ports, which strained supply chains, and the Chinese renmimbi’s appreciation against the ringgit.
The research house reduced its 2027 financial year forecasts by 6.2% to reflect these weaker earnings and margins, maintaining its "hold" call and lowering its target price (TP) to RM1.40, especially in the face of oncoming headwinds.
Key challenges facing the dollar store company include rising labour costs, with the rising minimum wage from the government’s 2027 budget expected to add RM2.8 million in monthly staff costs, and uncertainties around import costs and supplier prices.
“Against this backdrop, we see an increasing likelihood of Eco-Shop revising its RM2.60 fixed price point within the next 12 months to defend margins, in line with Eco-Shop’s acknowledgement that further price adjustments may be unavoidable,” said the research house.
While raising prices further could support the company’s margins in the long term, CIMB Securities added that this comes at the risk of alienating its B40 customer base.