ELK-Desa Resources Bhd, a non-bank lender focused in the used-car segment, posted a 143% jump in its net earnings for 2Q FY3/2023 ended Sept 30, 2022 to RM11.53 mil (2Q FY3/2022: RM4.75 mil) in view of higher contribution from both its hire purchase and furniture segments.
Meanwhile, the group’s revenue for the quarter increased by 54% to RM36.04 mil from RM23.36 mil a year ago.
For the 1H FY3/2023 period, ELK-Desa’s net earnings soared almost three-fold to RM29.12 mil (1H FY3/2022: RM9.72 mil) from the previous corresponding period while revenue was 37% higher at RM74.99 mil (1H FY3/2022: RM54.73 mil).
The group’s hire purchase receivables as of Sept 30, 2022 stood at RM521.12 mil which is 11% higher than the previous year.
In support of the increase in hire purchase receivables, ELK-Desa’s group’s bank borrowings rose by 37% as a result of higher drawdown of block discounting facilities. Nevertheless, the group’s gearing remains at a low level of 0.43 times for the said period.
Revenue for its hire purchase segment rose by 29% to RM24.09 mil during the quarter primarily as a result of the expansion of the group’s hire purchase portfolio.
Impairment allowance decreased by 67% to RM1.78 mil while credit loss charge also decreased from 1.01% to 0.32%.
The lower impairment allowance was due to a decrease in the non-performing accounts during the quarter, a reflection of robust credit recovery initiatives as well as hirers’ continuous repayment trend. Net impaired loans ratio decreased from 1.83% as of June 30, 2022 to 1.62% as of Sept 30, 2022.
The combination of a larger hire purchase portfolio and lower impairment allowance during the quarter resulted in a notable 114% jump in pre-tax profit for the segment to RM14.10 mil against the corresponding quarter a year ago.
For the group’s furniture segment, revenue for the quarter ended Sept 30, 2022 jumped by 152% to RM11.95 mil while the group made a pre-tax profit of RM1.13 mil as opposed to a pre-tax loss of RM270,000 in the corresponding quarter a year ago.
This improved performance was mainly due to higher furniture sales in this quarter as compared to movement control order (MCO) disruptions to the furniture operations in the previous corresponding quarter.
As a reflection of its financial performance, ELK-Desa declared a single tier interim dividend of 4.5 sen/share (2Q FY3/2022: 2 sen/share) in respect of the financial year ending March 31, 2023 (payable on Dec 16).
“The significant profit contribution from our hire purchase segment in the first six months of this financial year was better than expected as a result of the reversal of impairment allowance on hire purchase receivables,” commented ELK-Desa’s executive director and chief financial officer Teoh Seng Hee.
“However, we do not foresee such reversal trend to continue for the remaining financial year given the uncertainties within the operating environment such as rising cost of living and expiry of bank loan moratoriums impacting borrowers’ disposal incomes.”
Nevertheless, the group expects the overall demand for used-car hire purchase financing to remain strong in tandem with the economy normalising.
“We also expect the growth of online trading platforms for used cars to contribute towards a slower price reduction rate for older used cars while the introduction of a higher minimum wage rate of RM1,500 may positive for the industry,” added Teoh.
At 4.32pm, ELK-Desa was up 4 sen or 2.84% to RM1.45 with 207,000 shares traded, thus valuing the company at RM440 mil. – Nov 16, 2022
