Summary

• Below expectations. In 1Q24, ELKDESA registered a core net profit RM8.5m (+11.9% QoQ, -51.4% YoY). The core net profit is only accounted for 20-21% of ours and consensus estimates, we think it is below expectation and the conditions may stay soft amid the elevated inflationary pressure over the next 3 quarters. The key deviation was due to the absence of the reversal of impairment allowance for the hire purchase segment.

• QoQ/YTD. Core net profit rose 11.9% to RM8.5m in 1QFY24 from RM7.6m in 4QFY23, thanks to the higher profit contribution from the hire purchase segment in the quarter. Meanwhile, net impaired loans ratio increased from 1.92% in 4Q23 to 2.25% in 1QFY24.

• YoY. For 1QFY24, revenue increased 9% to RM26.7m, but the core net profit declined by 51.4% to RM8.5m from RM17.6m in 1QFY23. This was due to (i) the reversal of impairment allowance amounting to RM5.36m in the previous quarter, (ii) credit loss charge of 1.18% as compared to a reversal of credit loss charge of 1.01% in 1QFY23, (iii) higher operating and staff costs and (iv) higher finance costs. The reversal of impairment allowance and credit loss charge were due to exceptionally good collection and positive recovery activities.

• Outlook. The Malaysian economy has expanded at a more moderate pace at 2.9% in 2Q23 as compared to 5.6% and 14.2% in 1Q23 and 4Q22, respectively. Meanwhile, the core inflation remained elevated despite the moderation of headline inflation. Hence, with this environment, we expect the higher cost of living and tighter disposable incomes may impact the purchase of “big ticket” items such as used car and furniture and even the ability of loans repayment. Looking at FY24, we expect ELKDESA to grow at a moderate pace in view of the uncertain macroeconomic environment. The key focus for ELKDESA will be on the reduction of its impaired loans ratio, which is relatively high due to the operational disruptions caused by the MCO.

Valuation & Recommendation

• Despite ELKDESA’s core net profit was below expectation, we are not revising the earnings forecast and we are ceasing the coverage due to reallocation of internal resources. Our last recommendation on ELKDESA was HOLD with a fair value of RM1.02, which was derived by ascribing a P/B of 0.95x to FY24f BVPS of RM1.07.

Source: Mplus Research - 25 Aug 2023