Report to Shareholders

Dear Shareholders,

The COVID-19 pandemic has undoubtedly made a significant impact on our business in the second half of FY2020, especially for our subsidiaries in China, which was the first to be affected.

While we have recorded a net loss for the year, the overall gross profit from operations and new projects subsequently secured underscore the resilience of each of our business segments, Specialist Relocation, Third Party Logistics (“3PL”) and Technical & Engineering (“T&E”), and the potential for growth as the economic landscape changes.

FINANCIAL PERFORMANCE

Chasen achieved an annual revenue of S$101.0 million, approximately S$30.9 million lower than FY2019, mainly due to the delays in projects incurred in the second half of FY2020, especially for our Specialist Relocation business in China, and construction related business of our T&E business segment in Singapore.

The Group recorded a net loss of S$15.2 million in FY2020, compared to a net profit of S$4.8 million in the previous financial year. This is mainly attributed to the drop in revenue and write downs resulting from the absence of compensation from customers for project delays and impairment provisions on receivables from customers whose business faced adverse conditions brought by the pandemic.

Our Specialist Relocation business segment remained the largest revenue and gross profit contributor in FY2020. It generated S$49.5 million in revenue and S$9.3 million in gross profit, compared to S$78.0 million and S$24.1 million respectively in FY2019. While our subsidiary in China had a substantial order book for the year, the slowdown of the local economy and the outbreak of COVID-19 significantly disrupted operations resulting in much reduced revenue and a bottom line loss.

The 3PL business contributed S$28.1 million in revenue in FY2020, up from S$23.5 million in the previous year. Gross profit contributed was S$3.2 million as compared to S$3.7 million in FY2019. The growth in revenue was driven by increasing demand for our cross-border trucking services, as the COVID-19 pandemic had greatly highlighted its advantages over traditional modes of cargo transport by air and sea. Operations were not as affected by the outbreak as logistics has been deemed an essential service in the countries in which we operate. Although 3PL is a matured industry, the pandemic induced lockdowns opened doors for our 3PL subsidiaries that were hitherto closed as business usually stick to the tried and tested rather than do business with people they have not worked with before. We were able to offer our services during these times without lowering our service rates that is usually associated with market penetration strategies.

Our T&E business segment contributed S$23.4 million in revenue for FY2020, as compared to S$30.4 million in FY2019. It recorded a gross loss of S$0.4 million compared to a gross profit of S$4.3 million previously. This is due to project delays and the slowdown in construction market in Singapore.

SPECIALIST RELOCATION

Our Specialist Relocation business has successfully secured a number of significant projects in China for the year in review. As China recovers from the COVID-19 outbreak, Specialist Relocation expects to see a recovery in top and bottom lines as it secures new projects for FY2021 and existing projects resume.

Our Chuzhou-based subsidiary, Chasen Hi-Tech Machinery Services Pte Ltd (“HTC”), clinched a contract for move-in and warehousing related services for an 8.6th Generation thin-film transistor liquid crystal display (“TFT LCD”) manufacturing plant in Mianyang, Sichuan Province. The project worth approximately S$10 million, commenced in October 2019 and was scheduled to be completed in September 2020. It also secured a contract for a project worth approximately S$9.7 million to provide move-in services for a 6th Generation AMOLED plant in Hefei, Anhui Province, which was set to be completed in November 2020. As a consequent to the pandemic, the completion dates for both projects would be stretched beyond their scheduled deadlines by several months.

Just into FY2021, HTC also won a contract to provide move-in services for a new 8.5th Generation TFT LCD manufacturing plant cum OLED R&D facility being established in Changsha, Hunan Province. The project is worth approximately S$9.95 million and would commence in last quarter of calendar 2020. We remain one of the leading service providers in Specialist Relocation in China, and are well positioned to capture new contracts as businesses ramp up or upgrade their production capacity as the local economy improves.

To increase our foothold in the Vietnamese market, we have acquired the remaining 30% non-Chasen held equity interest in Chasen Transport Logistics Company Limited (“CTL”) as of June 2020, through our wholly-owned subsidiary Ruiheng International Pte. Ltd. With full control of the Vietnam-based CTL, we can set a new direction for our Specialist Relocation business in this fast emerging economy of ASEAN.

The Group’s Penang-based subsidiary, Chasen Logistics Sdn Bhd (“CLSB”) secured a relocation service contract with a German MNC located in the Kulim Hi-Tech Park in Kedah, Peninsular Malaysia for a period of three years until May 2022, valued at S$1.3 million as it further develop a recurring revenue base to complement its project revenue as the industry in Malaysia matures. This would replicate the successful business model of specialist relocation services in Singapore, which today comprise largely of recurring rather than project revenue.

For FY2021, CLSB already bagged two projects to provide relocation services for a US solar panel manufacturing and a US semi-conductor manufacturing plant in Kulim Hi-Tech Park and Perai (in Penang) respectively. The semi-conductor contract is for the first phase, with two more phases to follow. Both contracts are worth a total of approximately S$3.08 million and will run throughout the current financial year.

In support of the regional 3PL business, Liten Logistics Services Pte Ltd (“LLS”) provides warehousing and distribution services to a major 3PL customer in a two-year contract worth approximately $3.8 million. This would complement its relocation services to the built environment sector that unfortunately had to shut down completely due to COVID-19 infection issues in the foreign worker dormitories.

THIRD PARTY LOGISTICS (“3PL”)

Our Penang-based 3PL subsidiary, City Zone Express Sdn Bhd (“CZE-M”) is in the midst of a project worth S$3.2 million to provide cross-border services from Malaysia to Vietnam and China to Singapore, which will run until January 2021. There is a second contract, worth approximately S$4.1 million in total (S$2.5 million in the first year and S$1.6 million in the second year), where CZE-M will provide cross-border services from Singapore to Thailand and Malaysia to Singapore.

We are in the midst of obtaining shareholder approval for CZE-M to acquire a property strategically located near Bayan Lepas International Airport on Penang island. This will allow CZE-M to expand warehousing capacity in the region to meet rising local and cross-border logistics market demand.

With the establishment of the Vietnam and China 3PL operations to complement our Thailand operations set up two years earlier, the cross-border link from Shanghai to Singapore is set to exploit the opportunities of this land freight alternative to traditional sea and air cargo freight. COVID-19 enhanced the attractiveness of this alternative and with our early mover advantage we expect greater contribution of this business segment to the Group’s business growth. To match increasing demand for land freight capacity, our 3PL group plan to increase both warehousing and trucking capacity to position us to capture a larger share of the growing market in Southeast Asia in FY2021. While there is uncertainty surrounding the pandemic, we have seen growing interest from customers in our services over those provided by our competitors as we have the capability, track record and expertise to carry out these projects.

TECHNICAL & ENGINEERING (“T&E”) SERVICES

Sales had picked up in construction-related businesses in FY2019 following our efforts to reorganize the subsidiaries in this segment to improve operational synergy and reduce overall costs, as well as review our cost structure to be more competitive in the Singapore market. Despite this, the Singapore construction market continues to slow down, and the built environment would be the last industrial sector to reopen subsequent to the lifting on Circuit Breaker restrictions.

However, we have identified a bright spot in the increasing demand for solar panel manufacturing and installation in Singapore as the Housing Development Board (HDB) moves forward with its plan to install solar panels on residential blocks. To this end, our T&E subsidiary, Hup Lian Engineering Pte Ltd (“HLE”) has secured a S$5.0 million project to fabricate and install steel frame structures for these solar panels. HLE was able to clinch this contract through its innovative design using lighter composite materials for a more cost-effective installation.

HDB has announced that it intends to install solar panels on about 10,000 residential blocks around Singapore by 2030. We see this as an opportunity for us to leverage on our innovative design and expertise to capture this growing demand in this sunrise segment of the economy.

LOOKING AHEAD

During this unprecedented health crisis, we expect to see significant shifts in the Specialist Relocation, 3PL and T&E industries in the countries in which we operate. The signs of recovery in China’s economy are encouraging; we expect to see more Specialist Relocation customers reopening their worksites, which would allow us to resume our existing contracts as well as pursue new projects. We are seeing significant growth in the 3PL sector as the pandemic has forced companies to strike a balance between speed and cost. Land freight has emerged as the most sustainably viable logistics mode compared to air and sea. Our expanded transport fleet and warehouse capacity would allow us to meet this rising demand. While the overall construction industry in Singapore remains sluggish, our new found market in solar panel installation will tide us through until the built environment sector picks up in the coming years.

APPRECIATION

On behalf of the Group, I would like to express my gratitude to our customers, business partners and shareholders for your unwavering support during this period. I would like to assure all shareholders that we continue to monitor the impact of COVID-19 in the markets we operate in and are still actively exploring options to enhance value for your share.

I would also like to convey my appreciation to the Board, management staff and all employees for their continued loyalty, commitment and hard work as we persevere through this challenging time and forge ahead to grow our business resilience across Asia and beyond.

LOW WENG FATT
Managing Director & Chief Executive Officer