ELK-Desa Resources Bhd, a non-bank lender focused on the used-car segment, saw its revenue for 1Q FY3/2025 ended June 30, 2024 edged up 17% to RM45.88 mil from RM39.18 mil a year ago mainly due to higher contribution from both its hire purchase and furniture segments.
However, its net profit declined marginally by 4.2% to RM8.14 mil from RM8.5 mil on the back of increase in impairment allowance and other expenses.
The group’s hire purchase receivables as at end-June 2024 stood at RM668.34 mil or a 16% improvement against last year’s RM574.47 mil.
This is reflective of the group’s strategy to expand its hire purchase receivables even further after it has surpassed pre-pandemic levels in the previous financial year.
In order to support the expansion of its hire purchase receivables, the group’s bank borrowings rose 26% although its gearing remains at a manageable level of 0.63 times.
For the hire purchase segment, ELK-Desa’s revenue in the first three months of FY3/2025 inched up 15% to RM30.71 mil as a result of growth of its portfolio.
However, impairment allowance also increased by 32% to RM9.71 mil while credit loss charge rose to 1.43% from 1.18%.
The higher impairment allowance and credit loss charge were mainly due to slower hirer repayment and higher losses incurred from sales of repossessed vehicles during the quarter.
Furniture segment
Like its hire purchase segment, revenue for its furniture segment also shot up by 22% to RM15.17 mil mainly due to higher domestic wholesale activities, especially in East Malaysia given the group has been steadfastly growing its presence in key markets within Sabah and Sarawak.
Despite this, gross profit margin for the segment decreased marginally to 36% from 37%. Additionally, other expenses rose due to higher selling and distribution cost from shipping cost to East Malaysia.
The impairment allowance further rose to RM140,000 due to slower repayment from furniture dealers in this quarter on a year-on-year (yoy) basis. Despite these challenges, the group’s furniture segment still posted a pre-tax profit of RM970,000 for the quarter under review.
Our performance in the first quarter was reflective of the operating landscape,” commented ELK-Desa’s executive director and chief financial officer (CGO) Teoh Seng Hee.
“For our hire purchase segment, we will continue to sustain a growth trajectory by expanding our hire purchase receivables moderately, targeting a growth rate in the lower to mid-teens.”
Nevertheless, Teoh stressed the need to keep a close eye on potential economic headwinds that may stem from changes to domestic policy on subsidies and price controls, slower than expected growth in key economies, and increasing cost of domestic goods.
For its FY3/2025, ELK-Desa will pay special attention towards driving down its impaired loans ratio even further. “In addition to our robust risk management process, we also pro-actively engage our customers while maintaining our pace in recovery efforts,” contended Teoh.
As for prospects of the group’s furniture segment, Teoh added, “Sabah and Sarawak remain exciting markets for us and we plan to enhance our logistics capabilities while offering our customers more in terms of diversity and range of products in order to become more competitive in this space.”
At 3.42pm, ELK-Desa was unchanged at RM1.21 with 35,100 shares traded, thus valuing the company at RM550 mil. – Aug 15, 2024
