This article first appeared in The Edge Financial Daily on August 10, 2018

KUALA LUMPUR: ELK-Desa Resources Bhd expects its 15% compound annual growth rate (CAGR) in the last five financial years to spill over into the current year, as it seeks to grow the hirer base and is supported by higher financial leverage through bank borrowings.

“ELK-Desa has carved out a niche as a reputable lender in the used passenger car market, targeting buyers who are seeking small value financing,” said group executive director and chief financial officer Henry Teoh Seng Hee. “This market continues to be underserved as demand far outweighs supply.”

Over the last five financial years, Teoh said ELK-Desa recorded a 15% CAGR for its net hire-purchase receivables — a key financial metric that has supported the group’s revenue and profit — growing from RM252.69 million in the year ended March 31, 2014 (FY14) to RM400.42 million in FY18.

“We hope to continue recording the strong growth that we have seen in the past,” he told reporters after the group’s annual general meeting yesterday.

As for the hirer base, Teoh said ELK-Desa hopes to increase its customers from 34,000 now, as it looks forward to strong demand for its new hire-purchase financing package, which is offered by more than 1,000 used car dealers in the Klang Valley.

In FY18, ELK-Desa stepped up its hire purchase financing efforts and extended the maximum loan value to purchase used cars to RM35,000.

“Previously, we have been predominantly providing hire-purchase financing for loans amounting to not more than RM20,000. We realise that this limits us in providing financing for a larger range of popular vehicle models such as Perodua,” he added.

At the same time, Teoh said ELK-Desa’s extension of the hire-purchase loan cap to grow its hirer bases will be done in a sustainable manner without compromising on asset quality.

“We observed that the non-performing loans (NPLs) for this particular segment are very manageable,” he said, adding that the group has significantly improved the NPLs to 1% in FY18, from 1.2% in FY17 and 2.2% in FY14.

“We place special emphasis on the credit recovery process, [with a] strong focus on recovery and risk management,” he said.

To fund business growth, Teoh said ELK-Desa will be shopping at local banks to increase its borrowings as it has ample capacity to raise its gearing, which stands at 0.13 times currently.

“For the next one year, we will rely on gearing to support business growth. Even though our bank borrowings have more than doubled from RM27 million to RM55 million currently, our gearing is still low and nowhere near the dangerous level,” he added.

Teoh said ELK-Desa does not have any immediate plan to tap into the capital market and raise funds via rights issues.

He added that the group also does not currently plan to venture outside the Klang Valley.

ELK-Desa’s share price fell one sen or 0.84% to RM1.18 yesterday, with a market capitalisation of RM364.13 million.