ELK-DESA Resources Bhd, a non-bank lender focused in the used-car segment, posted an almost 16% rise in its net profit for its 3Q FY3/2022 to RM10.52 mil (3Q FY3/2021: RM9.08 mil) as a result of stronger contribution from the group’s hire purchase financing and furniture segments.
The group’s revenue during the period under review was slightly higher at RM38.2 mil (3Q FY3/2021: RM37.2 mil) due to higher contribution from its furniture segment.
For the cumulative nine-month period, both the group’s net profit and revenue dwindled 4.2%% and 11.5% to RM20.24 mil (9M FY3/2021: RM21.12 mil) and RM92.93 mil (9M FY3/2021: RM105 mil) respectively.
The decline was mainly due to business and operational disruption in the furniture segment stemming from the imposition of movement control order (MCO 3.0) from June to September 2021 to contain sudden surge in COVID-19 cases.
As of end-December 2021, the group’s hire purchase receivables was recorded at RM469.29 mil which was 10% lower compared to RM523.13 mil a year ago. This was a result of the group embracing a more cautious stance to preserve asset quality.
The group’s bank borrowings during the same period shrank 17% mainly due to repayment of block discounting facilities and term loans. There was no outstanding balance for Medium Term Notes (MTN) as they were fully redeemed during the financial period.
Gearing remains at a low level of 0.30 times, which was even lower compared to a gearing of 0.49 times a year ago.
For the group’s hire purchase segment, the quarter under review saw hire purchase revenue decline by 3% to RM22.35 mil against the corresponding quarter last year. However, pre-tax profit was 9% higher at RM12.29 mil due to lower borrowing cost and impairment allowance.
Year-to-date, the hire purchase financing segment reported a 9% decline in revenue to RM63.85 mil compared to RM69.81 mil in the prior year while pre-tax profit saw a slight improvement of 2% to RM25.95 mil from RM25.39 mil last year.
The first nine-month of the financial year saw the hire purchase segment recording a 22% decrease in impairment allowance to RM15.64 mil. Credit loss charge (ie. impairment allowance over average net hire purchase receivables) during the period fell to 2.92% from 3.41% a year ago.
The lower impairment allowance and credit loss charge were mainly due to the hirers’ continuous repayment trend during the said period.
“The group’s improved performance in the 3Q FY3/2022 is in tandem with the normalisation of business operations following the MCO,” commented ELK-Desa’s executive director and chief financial officer Teoh Seng Hee.
“While there are less uncertainties currently compared to 2021, the operating landscape in the immediate term remains challenging. The recent floods in the Klang Valley may affect our customers’ ability to fulfill their loan obligations. We are monitoring the situation very closely.”
In the shorter term, Teoh said the group will continue to take a prudent approach to manage its hire purchase portfolio by ensuring asset quality while sustaining if not growing its hire purchase receivables.
“We remain positive on our prospects in the medium to long term as hire purchase solutions in the used car niche market is still robust, more so as macro-economic indicators like job security, consumer and business confidence as well as the overall economy are trending towards the path of recovery,” he added.
At 2.47pm, ELK-Desa was up 1 sen or 0.76% to RM1.32 with 84,800 shares traded, thus valuing the company at RM393 mil. – Feb 18, 2022
