PROSPECTS of a recovery in the under-served hire purchase financing for used motor vehicles remain intact judging from the latest financial performance of ELK-Desa Resources Bhd, a non-bank lender focused in the used-car segment.
As expected, the company posted a slight dip in its earnings and revenue for its third quarter ended Dec 31, 2020 probably in view of disruption to its operations caused by the implementation of the movement control order (MCO) to curb the spread of the COVID-19 pandemic.
ELK-Desa’s net profit and revenue during the period under review fell to RM9.08 mil (3Q FY3/2020: RM9.43 mil) and RM37.20 mil (3Q FY3/2020: RM38.65 mil) respectively due to lower contribution from the hire-purchase segment.
On a cumulative basis, the group’s net profit for the nine-month period dropped 25.4% to RM21.12 mil (9M FY3/2021: RM28.32 mil) while its revenue inched down 5% to RM105 mil (9M FY 3/2020: RM110.47 mil).
“Despite of the disruptions to our operations caused by the COVID-19 pandemic, ELK-Desa remains resilient with sustained earnings and strong fundamentals,” commented the company’s executive director and chief financial officer Teoh Seng Hee.
“The group’s results is in line with our expectations and in tandem with our strategy to moderate the growth of our hire purchase receivables in order to preserve asset quality during this challenging period.”
Such strategy has led to a sharp decline in impairment allowance for ELK-Desa’s hire purchase segment in the second and third quarter of its current financial year against the first quarter.
“This places us on track for a quick turnaround of performance once recovery takes hold,” projected Teoh.
“While we have also been focused on ensuring credit recovery, we are happy to note that most of our borrowers have been committed towards fulfilling their obligations.”
The first nine-month of the financial year saw ELK-Desa’s hire purchase segment recording a 33% increase in impairment allowance to RM20.11 mil.
Nevertheless, it is important to note that impairment allowance has declined significantly in the two consecutive quarters (namely, during the company’s 2Q and 3Q FY3/2021) against the first quarter of its current financial year.
This is testament to the group’s strategy in exercising prudence to preserve asset quality.
On a similar note, the company’s credit loss charge (ie impairment allowance over average net hire purchase receivables) during the nine-month period also rose to 3.41% from 2.75%.
ELK-Desa has attributed the higher impairment allowance and credit loss charge mainly in the first quarter to slower hirer repayment as a result of the ongoing pandemic crisis and MCO disruptions to the group’s recovery activities.
“We look forward to the pandemic coming to an end with the start of the national immunisation programme,” Teoh pointed out.
“While full economic recovery may take some time, ELK Desa is well-positioned to drive growth for our hire purchase segment as demand for used car financing is expected to remain strong, more so with improved consumer and business sentiments.” – Feb 18, 2021