Affin Hwang keeps 'buy' on ELK-Desa, TP at RM1.98

  • Analyst Reports
  • Wednesday, 05 Feb 2020

KUALA LUMPUR: Affin Hwang Capital research has reaffirmed its buy call on Elk-Desa Resources Bhd as it believes there is still ample opportunity for the financier to tap into the used car market.

THe research house said it remains upbeat on on the company's prospects as it is remains a prudent mass-market hire-purchase financing player in the Klang Valley.

"We also see better dividend payouts in line with an

expansion in earnings, estimated at a 3-year forward CAGR of 15.6%. Downside risk – rise in default rates," it said.

Affin Hwang maintained its price target of RM1.98 on the stock at 13x CY20E EPS.

On prospects, the research house said the robus national car sales in 2019 bode well for ELK as car owners in the B40 and M40 groups are likely to dispose of their existing cars in the used-car market before they upgrade their vehicles.

"This is where hire-purchase (HP) financing players such as ELK will finance the transactions at rates of 8.75-10%," said Affin Hwang.

The research house believes ELK could potentially catch up with AEON Credit Service (M) Bhd, its closest rival that is five times bigger, through the use of leverage.

"Based on a hypothetical scenario, should ELK make full use of its outstanding MTN facility (~RM850m), it could double its balance sheet and achieve a pre-tax profit of RM85m, based on gross receivables of RM1.4bn (as against current gross receivables of below RM600m)," it said.
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