ELK-Desa earnings outlook seen resilient


According to Affin Hwang Capital used motor vehicle financier ELK-Desa Resources Bhd is viewed as a safe haven in volatile markets given a resilient earnings outlook against a backdrop of moderating global growth.

PETALING JAYA: Used motor vehicle financier Elk-Desa Resources Bhd’s earnings outlook for the second half of financial year 2019 (H2FY19) looks to be resilient, backed by the group’s vertical expansion focus in the used-car hire purchase markets while maintaining domestic dealer partnerships in its furniture business.

According to Affin Hwang Capital, ELK-Desa is viewed as a safe haven in volatile markets given a resilient earnings outlook against a backdrop of moderating global growth.

“The group’s dividend yields remain attractive at 5.7% to 8.9%, at a 60% payout ratio. “A potential expansion of leverage will drive potential upside in earnings per share (EPS) and minimise dilution effects from the last two rights issues,” said Affin Hwang Capital.

The board of directors had declared a higher single tier interim dividend of 3.5 sen per share in respect of the current financial year ending March 31, 2019, as compared to 3.25 sen during the same period of FY18.

For the first half of financial year 2019, ELK-Desa registered a net profit of RM16.69mil, representing an increase of 51.6% as compared to the same period last year.

This was mainly due to an increase in hire purchase portfolio and significantly lower impairment allowance for the quarter under review.

ELK-Desa had seen strong receivables growth of 22.4% year-on-year (y-o-y) against Affin Hwang Capital’s FY19 assumption of 12% y-o-y.

Operating expenses were lower than the research house’s forecasts attributable to sharply lower receivables allowances, as annualised net credit cost came in at 354 basis points, versus Affin Hwang Capital’s FY19 forecast of 644 basis points.

 

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