ELK-Desa’s 2Q revenue up by 9% driven by hire purchase segment but net earnings takes a beating

ELK-DESA Resources Bhd, a non-bank lender focused in the used-car segment, chalked up a 9% rise in revenue to RM39.20 mil for its 2Q FY3/2024 ended Sept 30, 2023 buoyed by higher contribution from its hire purchase segment although the group’s net profit slumped 30.4% to RM8.84 mil from a year ago (2Q FY3/2023: RM11.53 mil).

The decrease in profit level is attributed to lower contribution from both of ELK-Desa’s hire purchase and furniture segments.

As of end-September, the group’s hire purchase receivables stood at RM588.81 mil which is 13% higher than the previous year. This is reflective of the group’s strategy to bring back its hire purchase receivables towards pre-pandemic levels.

At the same time, the group’s bank borrowings rose 23% 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 0.52 times as compared to 0.43 times one year ago.

For the hire purchase segment, revenue inched up 14% to RM27.44 mil during the quarter primarily as a result of expansion of the group’s hire purchase portfolio. However, pre-tax profit for the segment declined by 17% to RM11.76 mil due to the higher impairment allowances,

For the group’s furniture segment, revenue declined by 2% to RM11.76 mil due to mainly lower furniture sales during the quarter under review as compared to the previous corresponding quarter.

As a result, the gross profit margin decreased from 42% to 35% on the back of higher imported good purchase cost in view of weaker foreign exchange and stiffer competition.

From a six-month perspective, ELK-Desa’s revenue edged up 5% to RM78.38 mil from RM74.99 mil due to higher contribution from the group’s hire purchase segment.

However, its net profit slid 41% to RM17.34 mil (1H FY3/2023: RM29.12 mil) due to an absence of reversal of impairment allowances made available for the hire purchase segment in the first quarter of the previous financial period.

“The demand for the niche and underserved used car financing market that ELK-Desa operates in continues to out-strip supply,” commented ELK-Desa’s executive director and chief financial officer (CFO) Teoh Seng Hee.

“Despite this, the group is not expecting a similar sharp expansion in our hire purchase portfolio in view of the macroeconomic uncertainties within our operating landscape.”

Added Teoh: “While the domestic economy is resilient, Malaysian consumers – especially those in the M40 and B40 segments – are experiencing higher cost of living and tighter disposable incomes. We are concerned that this may impact their propensity to purchase big ticket items such as a used car and furniture or affect their ability to repay loans.”

In respect of its 2Q FY3/2024, ELK-Desa has declared a single tier interim dividend of 2 sen/ share (2Q FY3/2023: 3 sen/share after restatement for bonus issue). The dividend will be paid on Dec 18 to shareholders whose name appear in the record of depositors as of Dec 7.

At 2.55pm, ELK-Desa was unchanged at RM1.30 with 11,400 shares traded, thus valuing the company at RM591 mil. – Nov 16, 2023

Main pic credit: CarSifu

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