Quick Overview of $ELKDESA / 5228 (ELK-DESA RESOURCES BERHAD):
- A non-bank lender with niche in the hire purchase financing business of used motor vehicles sector, specifically the used car markets.
- Targeting buyers of higher B40 / lower M40 who are seeking small-value financing (loan size maximum around RM35k, with an average loan of ~RM14k), which are underserved by financial institutions.
- Has a dividend policy payout of no less than 60% of net profit.

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Understanding their business:
ELK-Desa Resources Berhad has 2 business segments through its wholly-owned subsidiaries, ELKDesa Capital Sdn Bhd and ELK-Desa Furniture Sdn Bhd.

1. ELK-Desa Capital Group - hire purchase (HP) financing for used motor vehicles as well as selling general insurance policies as an insurance agent. The main business pillar taking up 90% of total PBT.

Key financial/operating metrics to evaluate and things to look out for evaluate under this segment:
a. Total HP Receivables has been growing 12% YOY, in Q4FY24 it has reached RM641.7mil, and FY24 has reached all-time high at total of RM2.42bil.

b. Cost-to-income ratio has been steadily decreasing over the past few quarters, from 37% in Q4FY23 to 28% in Q4FY24, their target is to maintain below 30%.

c. Net Impairment Loans Ratio (aka NPL – non-performing loan ratio)
As compared to FY23, it has decreased from 1.92% to 0.56% in FY24. This is because of the positive impact of repossession activities on HP Portfolio quality. Full resumption of repossession activities since 2023 has been key factor in lowering impaired loans ratio, and hence improving their asset portfolio quality

d. Impairment allowances (RM’mil) in FY24 at 26.39mil compared to FY23 at 7.34mil. Credit Loss charge (%) stands at 4.12% as compared to FY23 at 1.23% due to higher losses incurred from sales of repossessed vehicles and absence of impairment reversal in FY23.

**Credit loss charge (i.e. impairment allowance over average net hire purchase receivables)

e. Gearing ratio in FY24 is at 0.62; they do look to increase gearing ratio to 0.7-0.9 in FY25 and a maximum 1.5% in beyond that to facilitate their HP growth and ensuring asset quality. No intention on tapping into capital markets and will only rely on internal funds & bank borrowings.

f. Cost of funding: current round of loan facility is ending in June 2024. They are renegotiating new financing, expecting cost of funds to hover c. 4.8% - 5.3%.
g. Overall landscape: pending change/updates of regulation in governing consumer credit players such as “Buy now, Pay later” by the consumer credit oversight board.


2. ELK-Desa Furniture Group - business of trading and wholesaling of home furniture which makes up approximately 10% of total PBT.

a. FY24 recorded RM54.55mil revenue, flattish if compared to FY23. For Q4FY24, there was an increase in revenue to RM16.56mil (18%) vs Q4FY23, which is in tandem with higher furniture sales. However, they had a lower PBT margin of 5.47% in FY24 as compared to FY23 (10.07%) due to write down of inventory cost, weaker foreign exchange and competitive pricing strategy, as well as other expenses.

b. The furniture are 60% sources locally through contract manufacturers and it is only sold in the domestic market, with focus on expanding penetration to Sabah and Sarawak.


Quite a straightforward and easy-to-understand business model.
Catalyst for the next 2-3 years might be the used car market growing and the sustainable demand for financing, since new vehicle sales did increase tremendously in the past 1-2 years. However, would need to pay attention to credit loss charge, impairments, cost of funding to minimize the downside risk, as well as any changes in the consumer credit industry.