ELK-DESA Resources Bhd, a non-bank lender focused in the used-car segment, has incurred a 13.6% decline in its net profit for its 3Q FY3/2024 ended Dec 31, 2023 to RM9.61 mil (3Q FY3/2023: RM11.12 mil) due to lower contribution from both hire purchase and furniture segments.
However, ELK-Desa achieved a higher revenue for the period under review at RM42.77 mil (3Q FY3/2023: RM39.95 mil) mainly due to higher contribution from its hire purchase segment.
On a cumulative basis, the group’s revenue for the nine-month period was RM121.14 mil (9M FY3/2023: RM114.95 mil) while its net profit was 33% lower year-on-year (yoy) at RM26.95 mil (9M FY3/2023: RM40.24 mil).
The decline was due to an absence of reversal of impairment for the hire purchase segment in the first quarter of the previous financial period.
As of end-December 2023, the group’s hire purchase receivables stood at RM616.06 mil which marked an increase of 10% compared to a year ago. This was reflective of the group’s strategic direction to grow its hire purchase portfolio sustainably to pre-pandemic levels.
The group’s bank borrowings as of end-December 2023 increased by 33% to RM264.09 mil as a result of higher drawdown of block discounting facilities to support the increased hire purchase receivables. Nevertheless, the group’s gearing remains at a manageable level of 0.56 times as compared to 0.43 times one year ago.
Year-to-date, ELK-Desa’s hire purchase segment’s revenue has risen by 12% to RM83.15 mil on the back of increase in its hire purchase portfolio. Its impairment allowance increased to RM19.05 mil from RM200,000 last year. Credit loss charge (ie impairment allowance over average net hire purchase receivables) also increased from 0.04% to 3.05%.
For the furniture segment, the group’s revenue for the first nine-month of its FY3/2024 had declined by 6% to RM37.99 mil mainly due to lower furniture sales compared to the previous corresponding period.
Gross profit margin also decreased from 38% to 36% mainly due to higher imported good purchase cost as a result of weaker foreign exchange and coupled with general margin squeeze resulting from stiffer competition. As a result, this segment recorded a lower pre-tax tax profit of RM2.01 mil (9M FY3/2023: RM3.95 mil).
“We are pleased to note that our hire purchase financing portfolio to date has already surpassed pre-pandemic levels,” commented ELK-Desa’s executive director and chief financial officer Teoh Seng Hee. “We aim to expand our portfolio even further in a sustainable and prudent manner, prioritising asset quality.”
Citing a report from Ken Research entitled “Malaysia Used Car Market Outlook to 2027”, Teoh expects demand for used car financing solutions to remain robust given that the Malaysian used car market is expected to grow further at a compound annual growth rate (CAGR) of 8.5% between 2022 and 2027.
“We have incurred greater losses from sales of the repossessed vehicles mainly due to a more significant decline in car price observed since June 2023,” he further noted.
“Nevertheless, we are encouraged to observe a downward trend in impaired loans ratio since its peak during the pandemic period. Moving forward, we aim to reduce this ratio further through pro-active asset recovery efforts while driving sustainable value creation for our shareholders and stakeholders.”
At 3.24pm, ELK-Desa was down 1 sen or 0.81% to RM1.22 with 27,200 shares traded, thus valuing the company at RM555 mil. – Feb 22, 2024
