ELK Desa expects better days ahead despite looming pandemic concerns

SET against a better prospect for the used car market, ELK-Desa Resources Bhd, a non-bank lender focusing on the used-car segment, has posted a one-fold year-on-year jump in its net profit for 4Q FY3/2021 to RM14.16 mil (4Q FY3/2020: RM6.57 mil).

During the quarter under review, the group registered a 3% increase in revenue to RM38.75 mil from RM37.5 mil in the corresponding quarter a year ago.

The improvement in performance during the company’s final quarter was largely due to a significantly higher contribution from its hire-purchase segment as a result of a reversal of impairment allowance arising from a decrease in non-performing accounts.

On a cumulative basis, the group registered a slight yoy decline in revenue to RM143.75 mil for the 12-month period ended March 31, 2021 (FY3/2021: RM147.97 mil). However, its net profit was a tad higher at RM35.28 mil from RM34.89 mil a year ago.

ELK Desa attributed such development to lower contribution from its hire purchase financing division. However, improved contribution from its furniture division had cushioned the decline in performance during the year under review.

“The resilience of the Malaysian economy and the Government’s stimulus packages have helped mitigated the severe impact of the global pandemic, especially among the more vulnerable B40 and M40 communities,” commented ELK Desa’s executive director and chief financial officer Teoh Seng Hee.

“This has translated into our customers’ ability to fulfil their loan commitments throughout this challenging period.”

On the hindsight, Teoh cautioned against lingering uncertainties as the COVID-19 crisis is far from over given the entire country is currently under the movement control order (MCO 3.0).

“More MCOs in the foreseeable future cannot be disregarded,” he noted. “Although there is currently sustained demand for hire purchase financing for used motor vehicles, prolonged pandemic-induced disruptions to the economy may eventually hamper our customers’ ability to fulfill their loan obligations.”

Moving forward, Teoh expects ELK-Desa to maintain its cautious stance to protect the quality of its assets while ensuring that its hire purchase receivables does not decline any further.

Additionally, the group will also remain vigilant in credit risk management while continuing to improve operational efficiencies and optimise operating cost.

As for the group’s furniture trading business, Teoh expects demand for furniture products to remain resilient.

“The lifestyle in the new normal will see more and more people working and studying from home,” he projected. “Hence, we foresee an uptrend in consumers spending to make their homes better equipped for work and study.”

However, raw material supply locally and globally has been hampered by logistic problems due to the pandemic. At the same time, travel restrictions as well as foreign labour policies have caused labour shortages.

All-in-all, ELK Desa has declared a second single tier interim dividend of 4.75 sen/share in respect of its financial year ended March 31, 2021 (FYE 3/2021).

In addition to the first single tier interim dividend of 2.50 sen/share paid on Dec 18 last year, the total dividend for its FYE 3/2021 is 7.25 sen/share (FYE 3/2020: 7.25 sen).

ELK Desa closed today’s trading 1 sen or 0.74% higher at RM1.37 with 156,000 shares traded, thus valuing the company at RM407 mil. – May 20, 2021

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