Is the ECOSHOP IPO Really as Expensive as It Appears?

The retail Bumiputera portion of the ECOSHOP IPO was under-subscribed. The IPO price has been revised downward 6.6% from RM1.21/share to RM1.13/share. 

At the IPO price of RM1.13, could ECOSHOP possibly be valued at approximately 20x FY26 (1 June 2025 – 31 May 2026) earnings, or lower? 

Effective 14 April 2025, prices at its Eco-Shop stores increased from RM2.40 to RM2.60 (+8.3%) in Peninsular Malaysia, and from RM2.60 to RM2.80 (+7.7%) in East Malaysia and Langkawi.

Below are pro-forma income statements reflecting the impact of increased selling prices. 

Scenario (i) assumes an 8% price adjustment across both Eco-Shop and Eco-Plus. 

Scenario (ii) assumes an 8% price adjustment at Eco-Shop only.

	FY2024	FY2024 (i)	FY2024 (ii)
Revenue	2,404,020.00	2,596,341.60	2,577,109.44
Cost of sales	(1,768,510.00)	(1,768,510.00)	(1,768,510.00)
GP	635,510.00	827,831.60	808,599.44
Other income/ expenses	50,796.00	50,796.00	50,796.00
Selling & distribution expenses	(351,040.00)	(351,040.00)	(351,040.00)
Administration expenses	(71,191.00)	(71,191.00)	(71,191.00)
Profit from operations	264,075.00	456,396.60	437,164.44
Finance income	2,504.00	2,504.00	2,504.00
Finance cost	(24,062.00)	(24,062.00)	(24,062.00)
Share of profit in associate	(813.00)	(813.00)	(813.00)
PBT	241,704.00	434,025.60	414,793.44
Taxation	(64,424.00)	(115,685.57)	(110,559.41)
PAT/ PATAMI	177,280.00	318,340.03	304,234.03
Number of shares	5,747,000,000.00
EPS (sen)	3.08	5.54	5.29
Historical PE based on IPO price of RM1.13	36.63	20.40	21.35

These adjustments significantly reduce the historical PE ratio from 36.63x to about 20.40x and 21.35x respectively. While price increases generally risk impacting sales volume, historical data from the last two price hikes shows that sales volumes rebounded within three months, with no prolonged decline.

Eco-shop previously raised prices from RM2.20 to RM2.40 effective 1 June 2022, coinciding with the start of FY23. Following the adjustment, gross margin improved from 19.6% in FY22 to 26.0% in FY23, and has remained above 26.0%. 

The recent RM0.20 price hike in April 2025 is expected to push gross margins above 30%. Is this margin too high?

For comparison, MRDIY’s gross margins were 45.36% in 2023 and 45.8% in 2024.

What about forward PE ratio based on FY26 estimated earnings?

Assuming a low double-digit revenue growth in FY25 and FY26, and factoring in

a) The minimum wage adjustment starting 1 February 2025;

b) A newly introduced 2% EPF contribution for foreign workers;

c) Electricity tariff adjustment in 2H25;

d) Interest saving; and

e) The absence of wages subsidy (FY24:RM5.367m),

… At the IPO price of RM1.13, could ECOSHOP possibly be valued at approximately 20x FY26 (1 June 2025 – 31 May 2026) earnings, or lower?

Other factors to consider include the Renminbi-to-Ringgit exchange rate and freight rates.

Is ECOSHOP still expensive?

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Additional information:

In the FYE 31 May 2024, it rolled out in phases, a new pricing strategy for our Eco-Plus format stores to streamline pricing across various product categories by implementing a fixed price tiering for each product category. It refined such pricing strategy for our Eco-Plus stores starting December 2024 to simplify the pricing structure. Currently, it offers a combination of products in its Eco-Plus stores at a fixed price of either RM2.60, RM6.00 or RM10.00 in Peninsular Malaysia, and either RM2.80, RM6.60 or RM11.00 in East Malaysia.