ELK-DESA Resources Bhd, a non-bank lender focused in the used-car segment, has posted a 61% decline in its net profit for the 4Q FY3/2022 to RM5.54 mil (4Q FY3/2021: RM14.16 mil) on the back of a lower revenue of RM35.96 mil (4Q FY3/2021: RM38.75 mil) primarily due to lower contribution from its hire purchase financing segment.
On a cumulative basis, the group revenue was 10% lower at RM128.89 mil (FY3/2020: RM143.75 mil) while net profit retreated 27% to RM25.77 mil (FY3/2020: RM35.28 mil) largely due to lower contribution from its hire purchase financing segment which remains the group’s core business activity and primary income contributor.
ELK-Desa’s hire purchase receivables as of March 31, 2022 dropped by 10% to RM468.05 mil from RM522.80 mil the year prior. This was in tandem with the group’s cautious stance to preserve asset quality instead of driving receivables growth.
Reflecting its cautious stance, revenue for the group’s hire purchase financing segment for FY3/2022 dropped by 9% to RM85.3 mil (FY3/2021: RM93.31 mil) in view of smaller hire purchase portfolio.
As a result, pre-tax profit for the segment dipped by 22% to RM32.72 mil from RM41.78 mil a year ago mainly due to lower hire purchase revenue and higher impairment allowances but was mitigated by lower finance costs.
Meanwhile, the group’s furniture segment saw revenue decline by 14% to RM43.59 mil mainly due to business and operational disruptions caused by imposition of the movement control order (MCO). This resulted in lower pre-tax profit of RM2.17 mil for the 12-month period ended March 31, 2022.
“The group’s performance during the year under review was within expectations as the MCO from June to September 2021 had impacted our business and operations,” commented ELK-Desa’s executive director and chief financial officer Teoh Seng Hee.
“The normalisation of business activities as Malaysia moves closer to the endemic phase is expected to contribute towards economic rejuvenation, foreign direct investments and job creation, all of which being macro-economic factors that are critical to our hire purchase financing and furniture business.”
Moving forward, Teoh expects ELK-Desa to gradually bring its hire purchase receivables portfolio towards pre-pandemic levels while taking a cautious approach to protect its asset quality.
“We believe that the overall demand for used-car hire purchase financing will remain strong as the economy shifts towards recovery,” he projected.
“However, we are still mindful of the uncertainties that remain including the rising cost of living due to supply chain and logistic disruptions, expiry of loan moratoriums given out by banks that will impact consumers’ disposable incomes and their repayment ability.
“Moreover, the group’s debt recovery activities continue to be constrained by the COVID-19 Act which generally protects borrowers’ interest. We will aim to remain vigilant of the risks that may impact our performance while striving hard to deliver tangible value growth to our shareholders.”
The ELK-Desa board has declared a second single tier interim dividend of 3.25 sen/share (payable on June 16) in respect of its financial year ended March 31, 2022
In addition to the first single tier interim dividend of 2 sen/share paid on Dec 16 last year, the total dividend payout for the group’s FY3/2022 stood at 5.25 sen/share (FY3/2021: 7.25 sen).
This represents a dividend payout ratio of circa 61% of its net profit which is higher than the dividend policy of 60% set by the board.
For the record, TA Securities Research has initiated coverage of ELK-Desa on May 19 with a “buy” rating and a fair value of RM1.50/share.
The research house stated the company’s investment merits as (i) recovery prospect from more robust hire purchase (HP) receivables and normalisation in impairment charges; (ii) high yielding HP book; (iii) steady demand for furniture envisaged; and (iv0 atractive dividend yield.
At 3.06pm, ELK-Desa was up 1 sen or 0.78% to RM1.30 with 42,600 shares traded, thus valuing the company at RM394 mil. – May 20, 2022
