ELK-Desa taps capital market to grow loans business

by SULHI KHALID / pic by TMR GRAPHIC

NON-BANK lender ELK-Desa Resources Bhd’s share price hit a historic high of RM1.7 last Friday following the establishment of its medium-term notes (MTN) programme of up to RM1 billion in nominal value via Premier Auto Assets Bhd.

Focusing on financing used cars, Premier Auto is a special purpose vehicle (SPV) that was set up as the issuer of MTN programme, the group said in a filing to Bursa Malaysia last week.

The tenure of the MTN Programme is 10 years, and Premier Auto may periodically issue MTNs of various tenures, up to an aggregate limit of RM1 billion.

Rakuten Trade Sdn Bhd head of research Kenny Yee said the MTN programme will allow ELK-Desa’s revenue to grow further.

“Their cost for the MTN programme is 6% and they loan out at around 9%,” Kenny told The Malaysian Reserve yesterday.

The research house has no specific target price, but Kenny remains positive on the ELK-Desa’s bullish trend.

The first tranche of senior MTNs totalling RM105 million — comprising RM85 million of Class A MTNs rated AAA and RM20 million of Class B MTNs rated AA3 — are scheduled to be issued on July 19, 2019.

ELK-Desa aims to utilise the fresh funds to grow the hirer base of its used car hire purchase financing business, the primary business activity and main income contributor of the group.

ELK-Desa CFO Teoh Seng Hee in the exchange filing noted that the corporate exercise is in tandem with its capital management strategy to rely on borrowings to grow its hire purchase business in the near to medium term.

“We have explored several financing options, and we believe this MTN programme provides a cost effective and a viable alternative source of financing through the debt capital market.

“This MTN programme is also timely as higher purchase financing for the used car segment remains underserved, with demand far out-stripping supply,” Teoh said.

ELK-Desa’s gearing ratio remains at a low and manageable level of 0.28 times as at March 31, 2019, and provides the company the flexibility to leverage up and tap into the debt capital market to raise funds, he stated.

For the financial year 2019 (FY19) ended March 31, 2019, the group registered a pretax profit of RM43.81 million, underpinned by higher contributions from the hire purchase financing business.

ELK-Desa also recorded 19% higher revenue to RM123 million from RM104 million recorded in FY18.

The group’s net hire purchase receivables recorded a 22% growth year-on-year to RM490 million as at March 31, 2019.

ELK-Desa’s share price has risen by 13% or 20 sen in the past month, and is up 40 sen or 30% year-to-date, valuing the company at RM504 million.

ELK-Desa’s core focus area is the under-served hire purchase financing for used motor vehicles and also involves cross-selling general insurance products to its hire purchase customers.