Listed on 18 December 2012, Elk-Desa Resources Bhd (KLSE:ELKDESA) (Elk-Desa) derives income from two businesses. They include provision of hire purchase financing for used motor vehicles and furniture trading. As of 11 July 2019, Elk-Desa has RM 456.1 million in market capitalisation, tripled its valuation of RM 145.0 million when it was first listed on Bursa Malaysia. 

In this article, I’ll highlight on its latest financial results and valuation figures. As such, here are 11 key things to know about Elk-Desa before you invest. 



Hire Purchase (HP) Division

  • Business Model
    Elk-Desa Resources Bhd provides HP financing to buyers of used motor vehicles where it earns an effective interest rate that ranges between 12.94 – 18.17% a year. Elk-Desa funds its HP disbursement via block discounting payables where it incurs an effective interest rate that ranges 5.21 – 5.22% a year presently. Hence, Elk-Desa would earn from their differences in interest rates. In addition, Elk-Desa derives additional income from overdue and service charges, handling & processing fees and insurance commissions which are ancillary to the provision of HP financing.


  • Customer Base
    Elk-Desa operates from two offices, one in Kuala Lumpur and the other in Klang. It relies on its network of motor dealerships to promote its HP financing business. Since its IPO listing, Elk-Desa had grown its network of dealerships from 700+ to 1,000+ in 2019. Hence, Elk-Desa has nearly doubled its customer base from 20,000+ hirers to 38,500+ hirers today. Its average outstanding net HP receivables is RM 13,000 per hirer, thus, indicating that it has low credit exposure on a per customer basis.


  • HP Receivables
    Elk-Desa has achieved CAGR of 13.3% in net HP receivables, rising from RM 159.3 million in 2010 to RM 490.0 million in 2019. It is in line with a continuous effort to expand its dealership network and customer bases in the 10-year period. Elk-Desa had improved on its asset quality with a drop in Non-Performing Loan (NPL) ratio from 3.8% in 2010 to as low as 0.8% in 2019. It is attributable to its hiring of new employees to expand its credit recovery team in that period. As a result, Elk-Desa was able to achieve a CAGR of 12.7% in HP interest income over the last 10 years. It increased from RM 24.9 million in 2010 to RM 73.0 million in 2019.








Source: Elk-Desa’s Annual Reports & IPO Document


  • Ancillary Income
    Elk-Desa Resources Bhd had increased ancillary income from RM 6.0 million in 2010 to RM 11.9 million in 2019. It is due to its growth in handling & processing fees and insurance commission received over the past 10 years. Income from overdue & service charges have remained stable at RM 1-2 million per annum in that period.



Source: Elk-Desa’s Annual Reports & IPO Document


Furniture Division


  • Business Model & Performance
    Elk-Desa started its furniture business in mid-2015. It distributes a wide range of furniture products under the ELK-Desa brand through its retail network of 800+ across Malaysia. Elk-Desa’s furniture segment remains small in terms of financial contribution to the group. It had generated a total of RM 1.0 million in profits before tax (PBT) in 2019.





Source: Elk-Desa’s Quarterly Reports

Group Results

  • Financial Performances
    Elk-Desa Resources Bhd has achieved CAGR of 16.6% and 10.7% in group revenues and shareholders’ earnings for the last 10 years. Group revenues had grown from RM 30.9 million in 2010 to RM 123.4 million in 2019. Earnings had increased from RM 13.2 million in 2010 to RM 32.9 million in 2019. The growth rate of revenue was faster than its earnings growth because Elk -Desa has began its furniture trading business in 2015. It has brought in a lot of sales but profits had remained low as discussed above. Elk-Desa has a 7-Year Return on Equity (ROE) average of 7.71% a year. As such, it made, on average, RM 7.71 in earnings a year from every RM 100 it has in shareholders’ equity from 2013 to 2019.





Source: Elk-Desa’s Annual Reports & IPO Document


  • Balance Sheet Strength
    As of 31 March 2019, Elk-Desa has total debt of RM 114.9 million and a total of RM 410.9 million in shareholders’ equity. Thus, its gearing ratio is 28.0%. More importantly, Elk-Desa increased its loan loss coverage to 359% in 2019, up from 121% in 2010. Hence, it has built a bigger buffer to prepare against future credit losses.



Source: Elk-Desa’s Annual Reports & IPO Document


Management

  • Major Shareholders & Board of Directors
    As of 11 June 2019, Teoh Hock Chai is the main shareholder of Elk-Desa Resources Bhd with 40.3% shareholdings, both direct and indirect, of the company. He is appointed as the Executive Chairman of the company. His sons, Teoh Seng Hui, Teoh Seng Hee, and Teoh Seng Kar are appointed as directors of Elk-Desa. His brother, Teoh Hock Su is a Senior Manager of Elk-Desa’s HP division. As such, the Teoh family remains involved and influential to Elk-Desa’s direction and business performance in the future. 

Valuation

  • P/E Ratio
    As of 11 July 2019, Elk-Desa Resources Bhd is trading at RM 1.54 per share. In 2019, it made RM 0.112 in earnings per share (EPS). Hence, it has a current P/E Ratio of 13.73, the highest since its IPO listing in 2012.


  • P/B Ratio
    As of 31 March 2019, Elk-Desa has reported to have net assets a share of RM 1.39. Thus, it has a current P/B Ratio of 1.11, the highest for the past seven years.


  • Dividend Yields
    Elk-Desa has paid out 6.50 – 7.00 sen in dividend per share (DPS) for the last seven years. In 2019, it has paid out 7.00 sen in DPS. Hence, it has a dividend yield of 4.55% per annum, the lowest since its IPO listing.


VIA’s Verdict 

Since its IPO listing, Elk-Desa has delivered consistent growth in group revenues and shareholders’ earnings and thus, enabling them to pay out stable DPS to its existing shareholders. 

Despite its financial track record, it seems the market is not interested to invest into its shares. This has caused a fall in Elk-Desa’s stock price from 2015 to 2017 and a flat stock price movement of RM 1.15 – 1.20 a share in 2017 and 2018. 

It was indeed great news to value investors, especially those who noticed it and grab some shares in 2017 and 2018. I was one of them. 🙂 

Eventually, the market has realised the track record of Elk-Desa and thus, grown their demand for its shares. It has caused Elk-Desa to spike upwards to RM 1.54 per share today. 


Source: Google Finance

So, is this a good time to buy Elk-Desa at RM 1.54 today? 

You decide. But, one thing is for sure. My dividend yield and capital growth for investing in Elk-Desa would be greater than you, if you buy it at RM 1.54. 

1 COMMENT

  1. Interesting article.
    Good stock but in my opinion the train has left the station. At the time of my writing, the stock is at 1.66
    Can I ask why do you think market is paying PE 15 and a PB ratio 1.2 and RCECAP is still stuck at PE 6 and PB ratio of 1 ?
    Elk-desa does motor and furniture financing, RCE does civil servant financing. Both have been growing steadily and so on. I do not understand why RCE has not taken off yet.

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