ELK-Desa Turns in FY2022 Profit Before Tax of RM34.89 million despite MCO disruptions

KUALA LUMPUR – ELK-Desa Resources Berhad (Stock Code: 5228/Sector: Finance), a non-bank lender focused in the used-car segment, today announced its financial results for the fourth quarter ended 31 March 2022.
During the quarter under review, the Group registered a 7% decline in revenue to RM35.96 million compared to RM38.75 million in the corresponding quarter a year ago. The Group’s profit before tax for the quarter also decreased by 57% to RM7.53 million, primarily as a result of lower contribution from the hire purchase financing segment.

On a cumulative basis, the Group revenue was 10% lower at RM128.89 million compared to RM143.75 million last year.

Profit before tax also dropped by 24% to RM34.89 million compared to RM46.02 million a year ago. This decline was largely due to the lower contribution from the Group’s hire purchase financing segment, which remains the Group’s core business activity and primary income contributor.

Hire purchase receivables as at 31 March 2022 dropped by 10% to RM468.05 million from RM522.80 million last year. This was in tandem with the Group’s cautious stance to preserve asset quality instead of driving receivables growth.

Hire purchase financing segment’s revenue for FY2022 decreased by 9% to RM85.30 million from RM93.31 million a year ago as a result of the smaller hire purchase portfolio. Profit before tax for the segment decreased by 22% to RM32.72 million from RM41.78 million mainly due to lower hire purchase revenue and higher impairment allowances but was mitigated by lower finance costs.

Finance costs decreased by 26% to RM9.54 million as a result of the Group’s concerted effort to pare down its borrowing during the financial year.

Year on year, impairment allowance had increased by 19% to RM22.15 million while credit loss charge also increased to 4.13% from 3.15%. The higher impairment allowance and credit loss charge were mainly due to increase in impaired loan accounts during the year, largely caused by the disruptions of the hirers’ repayment patterns amidst the movement restrictions and lockdowns (“MCO”) imposed between June to September 2021.

The Group’s furniture segment saw revenue decline by 14% to RM43.59 million mainly due to business and operational disruptions caused by the MCO. This resulted in lower profit before tax of RM2.17 million for the twelve (12) months period ended 31 March 2022.

Teoh Seng Hee, the Executive Director and Chief Financial Officer of ELK-Desa Resources Berhad, said, “The Group’s performance during the year under review was within expectations as the MCO declared by the Malaysian Government from June to September 2021 had impacted our business and operations.”

“With the high vaccination rate in Malaysia, we believe that the threat of future operational disruptions caused by MCOs will abate. Moreover, the normalisation of business activities as Malaysia moves closer to the endemic phase is also expected to contribute towards economic rejuvenation, foreign direct investments and job creation, macro-economic factors that are critical to our hire purchase financing and furniture business.”

“Moving forward, ELK-Desa aims to gradually bring its hire purchase receivables portfolio towards pre-pandemic levels while taking a cautious approach to protect our asset quality.
We believe that the overall demand for used-car hire purchase financing will remain strong as the economy shifts towards recovery. However, we are still mindful of the uncertainties that remain including the rising cost of living due to supply chain and logistic disruptions, expiry of loan moratoriums given out by banks that will impact consumers’ disposable incomes and their repayment ability.

Moreover, the Group’s debt recovery activities continue to be constrained by the Covid-19 Act which generally protects borrowers’ interest.

“We will aim to remain vigilant of the risks that may impact our performance while striving hard to deliver tangible value growth to our shareholders,” Teoh concluded.

For the furniture segment, ELK-Desa plans to sustain revenue growth by working closely with furniture dealers to identify the right furniture products that appeals to Malaysian consumers. This is in tandem with its strategy to solidify its presence in the wholesaling of home furniture in the domestic market.

Concurrently, the Group will also be optimising its capabilities in stock and logistics management in order to ensure the timely delivery of our furniture products to our customers.

The Board of Directors has declared a second single tier interim dividend of 3.25 sen per share in respect of the financial year ended 31 March 2022. The dividend will be paid on 16 June 2022 to the shareholders whose name appear in the record of depositors of the Company as at 3 June 2022. With the declaration of the second interim dividend, the Board of Directors will not recommend any final dividend for the financial year ended 31 March 2022.

In addition to the first single tier interim dividend of 2.00 sen per share, which was paid on 16 December 2021, the total dividend for the financial year ended 31 March 2022 is 5.25 sen per share (FY2021: 7.25 sen). This represents a dividend payout ratio of approximately 61% of the net profit, which is higher than the dividend policy of 60% set by the Board.

The Board has and will remain committed towards sustaining, if not, improving shareholders return while at the same time conserving sufficient financial resources for future expansion. ELK-Desa’s consistency in distributing dividends has further solidified the counter as a reliable dividend stock amongst investors.

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