Overall Financial Performance: Revenue Up, Profits Down

The latest quarter saw ELK-DESA continue its revenue growth trajectory, reflecting strength in both its hire purchase and furniture segments. However, the bottom line tells a different story, with profit before tax experiencing a significant decline. This divergence highlights the increasing operational costs and credit risks the company is navigating.

Quarterly Snapshot (3 months ended 31 March 2025 vs 31 March 2024)

While revenue for the quarter increased by 14%, reaching RM53.02 million, profit before tax decreased by 25% to RM9.80 million. This was largely driven by a substantial 70% increase in impairment allowances to RM12.61 million and a 33% rise in finance costs to RM4.67 million, reflecting the higher borrowings needed to fuel the growth in hire purchase receivables.

Year-to-Date Performance (12 months ended 31 March 2025 vs 31 March 2024)

For the full financial year, ELK-DESA’s revenue grew by 17% to RM196.68 million. However, profit before tax saw an 11% decrease to RM43.72 million. Similar to the quarterly trend, this was primarily due to a 67% increase in impairment allowances to RM44.50 million and a 34% increase in finance costs to RM16.37 million. These figures underscore the challenges of managing credit risk and borrowing costs in a growth-oriented strategy.

Diving Deeper: Segment Performance

ELK-DESA operates primarily through two segments: Hire Purchase Financing and Furniture. Understanding their individual contributions is key to grasping the overall picture.

Hire Purchase Financing Segment

The hire purchase segment remains the cornerstone of ELK-DESA’s business, with significant growth in its portfolio. As at 31 March 2025, hire purchase receivables stood at RM716.43 million, a 12% increase from the previous year, aligning with the Group’s growth strategy.

While quarterly revenue for hire purchase increased by 9%, profit before tax for this segment decreased by 32%. The significant jump in impairment allowances (70%) and credit loss charge (from 1.11% to 1.70%) points to slower hirer repayments, a key concern for this segment. Finance costs also rose by 33%, reflecting increased borrowings.

Furniture Segment

The furniture segment showed strong performance, contributing positively to the Group’s overall revenue growth.

Quarterly revenue for the furniture segment surged by 21%, mainly due to higher domestic furniture sales. This segment also saw a healthy increase in gross profit margin from 31.6% to 36.1%. Despite a 33% increase in other expenses (driven by higher selling, distribution, and shipping costs), the segment’s profit before tax increased by a robust 65%, showcasing its operational efficiency and strong demand.

Financial Health and Gearing

ELK-DESA’s balance sheet indicates continued expansion, with total assets growing by 10.65% to RM892.86 million. This growth is largely supported by increased bank borrowings, which rose by 25% to support the expanding hire purchase receivables. Consequently, the gearing ratio increased to 0.76 times from 0.62 times a year ago, though the company states it remains at a manageable level. Net assets per share also saw a slight increase to RM1.08 from RM1.06.

Risks and Prospects: Navigating a Dynamic Landscape

ELK-DESA acknowledges the macroeconomic headwinds and sectoral shifts that could impact its future performance. The company is closely monitoring several key areas:

• Global Trade & Inflation: Rising shipping costs and the influx of lower-priced products could impact cost of living and local market dynamics. Inflation is also projected to trend higher in 2025, influenced by domestic policy reforms like fuel subsidy rationalization and SST expansion, which could affect consumer spending power.
• Automotive Sector Evolution: The aggressive pricing of Chinese Electric Vehicles (EVs) is forcing downward price adjustments on Internal Combustion Engine (ICE) vehicles. This trend could influence overall demand patterns and the residual values of ICE vehicles, which has direct implications for credit risk and asset recovery in ELK-DESA’s hire purchase segment.

Despite these challenges, the Board of Directors remains confident in the Group’s resilience. For FY2026, ELK-DESA is committed to:

• Hire Purchase Expansion: Continuing to expand its hire purchase portfolio within its niche and underserved market segment.
• Funding Strategy: Leveraging internally generated funds and bank borrowings, with no immediate plans for capital market fundraising, given its solid balance sheet.
• Furniture Segment Enhancement: Strengthening its competitive edge by enhancing logistics and product variety across Malaysia, with a specific focus on reinforcing its wholesale presence in Sabah and Sarawak.

Dividends: Returning Value to Shareholders

ELK-DESA has demonstrated its commitment to shareholders by declaring a second single-tier interim dividend of 2.50 sen per share for the current financial year ended 31 March 2025. This dividend will be paid on 26 June 2025. Including the first interim dividend of 2.00 sen per share paid in December 2024, the total dividend for FY2025 stands at 4.50 sen per share. This represents a dividend payout ratio of approximately 62% of net profit, which is higher than the Board’s stated policy of 60%.