Report to Shareholders

Dear Shareholders,

The Group’s return to profitability this year is a testimony of its determination, resilience and flexibility throughout the whole of FY2017 in overcoming the multi-faceted economic landscape. Underpinning this successful performance was our Corporate Shared Values that have made the Chasen Group, the service provider of choice for our clients’ diverse needs. Chasen employs innovative approaches and solutions in logistics and other supply chain requirements that support customers’ operations - big and small within Singapore, in the region, PRC and in the USA with the aim to realize our Corporate Vision of being the leading global integrated service provider with turnkey capabilities in supporting the development of manufacturing and service operation facilities.

FINANCIAL PERFORMANCE

For FY2017, the Group achieved pre-tax profit of S$4.5 million as compared with last year’s loss of S$2.3 million. Our revenue of S$106.2 million was a record high this year since we last achieved S$101.5 million in FY2014. Gross Profit of S$26.9 million was an improvement of 57.0% or S$9.8 million over last year.

Specialist Relocation Solutions Business Segment continues to be the leading contributor to the Group’s revenue as it recorded a revenue of S$52.8 million, which was higher than last year by 24.0% or S$10.1 million. Improvement in Gross Profit by 85.0% or S$9.5 million to S$20.6 million this year as compared with last year was the result of increase in revenue and gross margin. These were mainly contributed mainly by the overseas projects secured in the PRC, Malaysia, Vietnam and USA.

The Third Party Logistics (“3PL”) Business Segment posted an increase in revenue this year of 8.0% or S$1.4 million to S$18.6 million from last year. This largely came from our Malaysian subsidiary and the maiden performance of our new 3PL operations in Thailand. Its Gross Profit increased by 33.0% or S$0.7 million to S$2.8 million this year as compared with last year.

Despite the weakness in the construction and property development industries in Singapore, the Technical & Engineering Business Segment reported an increase in revenue this year of 4.0% or S$1.2 million to S$34.8 million from last year. However, its Gross Profit reduced by 10.0% or S$0.4 million to S$3.5 million this year as compared with last year.

In the year under review, the Group managed to exercise cost discipline with only a 7.3% or S$1.6 million increase in total operating expenses.
As most of the Group’s profits were derived from jurisdictions with higher corporate tax regime, the after tax profit of the Group was disproportionate to that of a wholly Singapore taxed business.

SPECIALIST RELOCATION SOLUTIONS BUSINESS SEGMENT

This Business Segment, which had recorded a drop in its FY2016 revenue, rebounded in the fnancial year under review to post a significant growth in revenue by 24.0% to S$52.8 million. This was largely attributed to the commencement of projects secured by our PRC-based subsidiaries, Chasen (Shanghai) Hi-Tech Machinery Services Pte Ltd and Chasen (Chuzhou) Hi-Tech Machinery Services Pte Ltd (“Chasen Hi-Tech”) in late last year and in current financial year. The manufacturing of TFT LCD or flat panel display (“FPD”) devices in the PRC continues to expand in line with the steady growth in large-size panel demand since the third quarter of 2016. FPD makers have allocated more of their production capacities to satisfy the large-size segments of the market. Based on investment plans and existing plants under construction, there would be at least 28 production facilities in PRC by 2018. In view of the dynamic developments taking place in the TFT LCD sector in the PRC, Chasen Hi-Tech is expected to continue to maintain its leadership position as the Relocation Logistics Specialist in the PRC particularly in the TFT LCD industry.

Chasen Logistics Sdn Bhd (“CLSB”) and Chasen Transport Logistics Co., Ltd (“CTL”) had successfully secured the initial phase of several relocation projects in Penang and Hai Phong. Both subsidiaries are in good stead to bid for the subsequent phases of these projects.

In Singapore, despite the saturated local semi-conductor market, Chasen Logistics Services Limited (“CLSG”) managed to secure a S$2 million contract in addition to its ongoing maintenance contracts to service their key customers through move-in or relocating machinery within the current manufacturing plant for scheduled maintenance or for production movement purposes. These recurring revenue coupled with several smaller scale relocation projects had helped to sustain its business in the year under review.

Liten Logistics Services Pte Ltd (“LLS”) on the other hand had been marketing its mover services to the construction and other heavy industries such as move-in of central air conditioning cooling towers and chillers for its building-owner customers and underground stations for MRT projects.

Over in the USA, Chasen (USA), Inc commenced execution of its maiden specialist relocation project with its move-in service under the first phase of the giga-factory project in Nevada. There are several phases in this project stretching beyond 2020.

THIRD PARTY LOGISTICS (“3PL”) BUSINESS SEGMENT

The increase in revenue of 8.0% to S$18.6 million this year as compared to last year was largely attributed to our Penang-based subsidiary, City Zone Express Sdn Bhd (“CZE”) and our newly established subsidiary, City Zone Express Co., Ltd (“CZE-T”) in Thailand. The prospect for the inland cross-border trucking operations stretches from Singapore, through Peninsular Malaysia into Thailand and the other Indo-Chinese countries, and into Vietnam and the PRC. To complement this inland cross-border operations, a new subsidiary, City Zone Express Worldwide Co., Ltd (“CZE-W”) was set up in the May 2017 to vie for complementary air and sea freight forwarding businesses. In the new financial year, CZE will set up a 3PL operation in Vietnam to extend its reach and operating base for a bigger market share of the cross-border land freight business in Indo-China and beyond.

Another of the Singapore-based 3PL entity, DNKH Logistics Pte Ltd (“DNKH”) continues to rebuild its service portfolio after relocating to a new location following the fire incident in 2015 and is gaining momentum in growing its customers’ base.

TECHNICAL & ENGINEERING (“T&E“) BUSINESS SEGMENT

In this Business Segment, there are three core businesses dealing in (1) construction-related work that includes additions and alterations (“A&A”) to existing building interiors and structures, scaffolding as well as mechanical and engineering (“M&E”) works, (2) contract manufacturing of machine parts for the telecommunications and ordnance industries and (3) engineering services for the electronic, semi-conductor and water treatment industries.

Despite the slowing pace of the construction and property development industry in Singapore, this Business Segment was able to increase its revenue by 4.0% or S$1.2 million to S$34.8 million in FY2017. In order to achieve synergy in sales, marketing and operational activities, the Group has housed the four construction-related subsidiaries, namely, Hup Lian Engineering Pte Ltd (“HLE”), Goh Kwang Heng Scaffolding Pte Ltd (“GKHS”), Goh Kwang Heng Pte Ltd (“GKH”) and REI Technologies Pte Ltd (“REIS”) in the newly renovated factory in Senoko since May 2017.

HLE’s forte is in steel structure fabrication and installation while its KL-based sister company, HLE Construction & Engineering Sdn Bhd (“HLECE”) is a general building contractor. GKHS and GKH are access specialist supplying scaffolding and other access facilities to contractors and building developers; and REIS’ strengths are A&A and M&E works including installation and servicing of mechanical ventilation system and air-conditioning ducting works.

The reorganized construction-related businesses would market the whole range of capabilities within the Group including seeking new growth markets overseas rather than their individual specialization. The operational synergy should result in better prospects in increasing their combined top and bottom lines in FY2018.

In contract manufacturing, the PRC subsidiary of REI Promax Group, Suzhou Promax Communications Technology Co., Ltd (“PMXC”) had a bumper year that saw their revenue increased substantially on the back of 3G mobile telecommunication rollout in India and 4G proliferation elsewhere in the developed economies. PMXC has a healthy order book from its telecommunication customers for the good part of the new financial year. With the advent of 5G mobile services, it is well placed in the longer term in fulfilling the expanded needs of its MNC customers and within the PRC to at least beyond 2020. It had also benefitted from the activities of our US marketing office by having the opportunity to submit samples to US companies looking to source components and sub-assemblies from contract manufacturers based in the PRC.

Singapore-based REI Promax Technologies Pte Ltd (“PMXS”) specializes in precision engineering focusing its business on humanoid robotic components, industries automation, medical devices, defense and ordnance components. 

The Group’s other Singapore engineering subsidiary within the T&E Business Segment, Global Synergy Technology Pte Ltd (“GTS”) specializes in the building and maintenance of cleanrooms for the semi-conductor sector while Malaysian-based companies, namely, Chasen Engineering Sdn Bhd (“CESB”), and Towards Green Sdn Bhd (“TGSB”) supports CLSB in providing value-add services to its customers in electrical installation, servicing of cryo pumps for semiconductor machines and decommissioning of manufacturing plants (prior to move-out). GTS also supplies engineers for the commissioning of newly installed wafer fabrication plant equipment.

As announced during FY2017, the Group has entered into a conditional sale and purchase agreement with a third party to dispose 60 percent of its equity interest in Eons Global Holdings Pte Ltd (“EGH”). This is in line with the Group’s strategy to bring on board a local PRC party that would better positioned to resolve the various issues with the local authorities faced by EGH’s wholly-owned subsidiary, Eons Global Water (Jilin) Co., Ltd (“EGW”).

LOOKING AHEAD

The Chasen Group remains well-positioned to serve its customers in the current environment. While there are some economic challenges to contend with today, we are confident of the markets we operate in as we continue to review our overall Group strategy and business plans for the various logistics and complementary technical operations that are driven by established or anticipated customer demand shaped by economic or market fundamentals. We maintain strong investment discipline and focus on markets that are seeing good demand for the integrated services that the business units in our Group can offer individually or collectively.

With the major projects secured by our Specialist Relocation Solutions Business Segment in Q4FY2017 and Q1FY2018, the Group expects this segment to contribute positively to the Group’s results in FY2018. 

Similarly, the Indo-China cross-border freight business with its recently added air and sea freight operations within the 3PL Business Segment is expected to progress further with possible connection into the continental route of the One Road One Belt Initiative. We are optimistic that this would make us a complete and holistic 3PL business service.

APPRECIATION

On behalf of the Group, I would like to thank our customers, vendors, advisors, bankers, partners and business associates whose support have been most invaluable in this challenging year. My heartfelt appreciation also goes out to our shareholders who had patiently and trustingly stayed with us throughout this period. Incidentally, our share price has been steadily climbing up over the last few months, resulting in many warrant holders converting their warrants into mother shares in recent months. I would like to assure all our stakeholders that we are committed to delivering higher shareholder value and I hope you will continue to give us your support.

Finally, I would like to thank my directors, management team and all employees who have worked tirelessly for the Group. We have successfully reorganized our Singapore business operations for the Specialist Relocation Solutions Business Segment last year and we have every confidence that we would succeed likewise for the four construction-related subsidiaries in the T&E Business Segment.

Going forward, we are positive and confident that we can attain that global reach we aspire to for the Group.

LOW WENG FATT
Managing Director & Chief Executive Officer