KUALA LUMPUR (Nov 16): ELK-Desa Resources Bhd, a non-bank lender focused on the used-car sector, saw its net profit decline 23.3% to RM8.84 million in the second quarter ended Sept 30, 2023 (2QFY2024), from RM11.53 million a year earlier, on higher impairment allowances.

Revenue rose 8.77% to RM39.2 million from RM36.04 million in 2QFY2023, primarily due to the expansion of the group’s hire purchase portfolio.

“Impairment allowance increased by 212% to RM5.54 million. Credit loss charge (ie impairment allowance over average net hire purchase receivables) increased from 0.32% to 0.90%," the group said in its bourse filing.

“The higher impairment allowance and credit loss charge were mainly due to the slower repayment from hirers and higher losses incurred from sales of repossessed vehicles in the current quarter in contrast to the exceptionally good collections and positive recovery activities in the previous correspondence quarter.

"Nonetheless, as a result of the higher level of repossession activities, the net impaired loans ratio decreased from 2.25% as at June 30, 2023 to 0.96% as at Sept 30, 2023,” said the group.

ELK-Desa declared an interim dividend of two sen per share, to be paid on Dec 18.

The group's furniture segment saw its gross profit margin decrease to 35% from 42% due to higher imported good purchase cost as a result of weaker foreign exchange and stiffer competition.

For the first six months of FY2024, ELK-Desa’s net profit dropped 40.45% to RM17.34 million from RM29.12 million in the same period of FY2023, while revenue rose 4.5% to RM78.38 million from RM74.99 million.

Commenting on the group’s prospects, ELK-Desa executive director and chief financial officer Teoh Seng Hee said demand for the niche and underserved used car financing market that the group operates in continues to outstrip supply.

In spite of this, ELK-Desa is not expecting a similar sharp expansion in its hire purchase portfolio in view of macroeconomic uncertainties within the group’s operating landscape.

“While the domestic economy is resilient, Malaysian consumers, especially 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," Teoh said in a statement.

Noting that impaired loans ratio has fallen from its peak during the Covid-19 pandemic, Teoh said “We will remain focused on further reducing this ratio throughout our robust credit recovery processes, while we work towards expanding our hire purchase receivables in a measured manner to protect the quality of our assets.

ELK-Desa shares were trading one sen or 0.77% higher at RM1.31 on Thursday afternoon, valuing the group at RM595.8 million.