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The Group turned in a much stronger result in FY2018 than the previous year. Our Specialist Relocation and Third Party Logistics (“3PL”) businesses fared particularly well, offsetting a subpar performance by our Technical & Engineering (“T&E”) business.
The overall strong performance is a testimony of our proven track record of efficiency, reliability and safety. It also reaffirms our deep knowledge and understanding of our customers’ diverse and often complex business needs in all the industries and markets they operate in.
Buoyed by strong demand for our relocation services in China and the US and for our cross-border land freight services in Southeast Asia, the Group achieved its highest annual net profit in six years in FY2018.
Net profit attributable to shareholders more than doubled to S$5.5 million from S$2.6 million in the previous year (“FY2017”). Fully diluted earnings per share increased to 1.48 Singapore cents in FY2018 from 0.76 Singapore cent in FY2017. The improvement came on the back of a 20% increase in revenue to an all-time high of S$127.9 million compared to S$106.2 million in FY2017.
The Group’s bottom-line also benefited from a reversal of a tax provision made in FY2017, as well as an absence of an impairment loss on an investment in an associate company and an absence of allowance for doubtful debts, which were incurred in FY2017. A government subsidy for an overseas subsidiary, a gain on disposal of fixed assets, and favourable foreign-exchange conditions also underpinned our FY2018 earnings.
The Specialist Relocation business segment was the largest contributor to our overall revenue and gross profit in FY2018. It generated S$75.1 million in revenue and S$22.3 million in gross profit, compared to S$52.8 million and S$20.6 million respectively in FY2017.
The 3PL business contributed S$22.9 million in revenue and S$3.8 million in gross profit in FY2018, up from S$18.6 million and S$2.8 million respectively in the previous year. Demand for our cross-border trucking services, available across Southeast Asia and even China, drove the increase.
As mentioned earlier, the T&E business was the odd one out in terms of the performance of our three business segments. Revenue from the T&E segment fell to S$29.9 million in FY2018 from S$34.8 million in FY2017 while gross profit declined to S$2.7 million from S$3.5 million over the comparative periods. The weaker performance was due mainly to the continued weakness in Singapore’s construction sector, where profit margins in general are being squeezed by stiff competition and high operating costs.
SPECIALIST RELOCATION SOLUTIONS
Specialist Relocation was the busiest of our three main businesses in FY2018. Demand for such services was particularly robust in China, where we took on a number of move-in projects for various ﬂat-panel display manufacturers. Many of these ﬂat-panel display suppliers, especially those from China and Taiwan, have stepped up production of larger panels to meet increased demand.
In the year under review, Chasen (Shanghai) Hi-Tech Machinery Services Pte Ltd, one of our Chinese subsidiaries, clinched two contracts worth a combined RMB90 (S$18) million to provide move-in services for two 8.6th-Generation thin-film transistor liquid-crystal display (“TFT LCD”) plants, which are located in Xianyang City in Shaanxi Province and Chengdu City in Sichuan Province respectively.
Our Chuzhou-based relocation subsidiary secured two projects worth a total of RMB36 (S$7.5) million. One was a four-month project worth RMB16 (S$3.3) million to assist in the move-in of an 11th-Generation TFT LCD manufacturing plant in Shenzhen. This is the first such plant in the world. The second project worth RMB20 (S$4.2) million and due to be completed in November 2018, involves managing a temporary warehouse for a 6th-Generation AMOLED plant in Mianyang city in Sichuan province. AMOLED, or active-matrix organic light-emitting diode, is a display technology used in smartwatches, mobile devices, laptops and television sets.
In the US, our subsidiary Chasen (USA), Inc. successfully completed the second phase of a US$12 (S$17) million relocation project for a major automobile product manufacturing plant in the state of Nevada. Chasen (USA), Inc. delivered its maiden full-year revenue in FY2018 amounting to US$9.8 (S$13.2) million, representing 10.3% of the Group’s total revenue that year.
In Malaysia, Penang-based Chasen Logistics Sdn Bhd secured RM2.2 (S$0.7) million worth of orders at the start of FY2018 from companies involved in manufacturing solar panels, optical components and printed circuit boards. The project for the solar panel manufacturer, an American MNC operating in Malaysia, was particularly notable. Not only did we beat the service provider that the customer usually works with for such jobs, we also completed the assignment – to relocate four decommissioned production lines to the scrapyard – in just two months, compared to the industry norm of 10 to 12 months for an undertaking of a similar nature. Chasen Logistics Sdn Bhd went on to clinch another contract worth RM6.6 (S$2.2) million, to help a US solar panel manufacturer ft out a new production line in Kulim, Kedah.
In Vietnam, our subsidiary Chasen Transport Logistics Co. Ltd. secured two projects worth a total value of US$1.5 (S$2) million. The frst project worth US$0.2 (S$0.3) million project from a Korean MNC is to provide move-in services for an OLED (organic light-emitting diode) manufacturing plant in Hai Phong while the second project was for a US solar panel manufacturing plant in Dong Nam valued at US$1.3 (S$1.7) million.
THIRD PARTY LOGISTICS (“3PL”)
The key contributors to the improved performance of our 3PL business in FY2018 were our operating entities in Malaysia and Thailand. In seeking to further expand in Malaysia, our Penang-based unit City Zone Express Sdn Bhd set-up a subsidiary, City Zone Express Bonded Warehouse Sdn Bhd in November 2017 to extend its business to include bonded warehousing.
We also set up 3PL operations in Vietnam in February 2018 with the incorporation of City Zone Asiatrans Corporation in Ho Chi Minh City. The new entity will complement our current cross-border trucking business and extend our 3PL capabilities into the Indo-China countries and China.
TECHNICAL & ENGINEERING (“T&E”) SERVICES
In the T&E business segment, we have three core businesses: (1) construction-related work including additions and alterations to existing building interiors and structures, scaffolding as well as mechanical and engineering 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.
Operating conditions in Singapore’s construction industry remained challenging in FY2018. As a service provider in this industry, we were not spared. However, with the streamlining of the construction-related entities within our T&E business, we expect to do better in FY2019.
These streamlining efforts included the sale of a 60% stake in Eons Global Holdings Pte Ltd, which provides management consultancy services to a Chinese wastewater and sewage treatment company. With the sale completed in November 2017, we now own only 40% of Eons Global Holdings Pte Ltd.
Our most recent effort to reorganize the T&E business involved acquiring in June 2018 the remaining 17% of Hup Lian Engineering Pte Ltd (“HLE”) we did not already own. With HLE now a wholly-owned subsidiary, we will set a new direction to turn it around.
We have specific plans to further increase our value position and enhance value for all shareholders. These plans can be summed up as follow:
Scaling up Relocation Business in China, Malaysia and the US
To meet the growing demand for our services in China, a new 110,000 sq ft warehouse in Chuzhou in Anhui province will be up and running in the second half of calendar 2018. This will open up new opportunities throughout China for our relocation business that would be complemented with value-add warehousing services for our TFT customers.
In Malaysia, we expect to expand beyond our current focus area, which spans the Kulim IT corridor in Kedah to Ipoh in Perak. We have set our sights on the Klang Valley in Selangor and the Nilai corridor in Negeri Sembilan.
In the meantime, we are in discussions with a major electronics manufacturer currently operating in Asia that intends to move some of its production operations back to the US. We expect more of such on-shoring activities as President Donald Trump pushes for more manufacturing companies to operate in the US.
Growing the 3PL Cross-Border Land Freight Business
With our newly established operations in Thailand and Vietnam, we can now perform cross-border truck deliveries to even more markets in Southeast Asia and beyond. The addition of the two new markets to our network provides cohesion and high efficiency in operating cross border trucking along this important land transport artery connecting Singapore, Malaysia, Thailand, Indo-China and mainland China. This will further enhance our first-mover advantage in Southeast Asia’s nascent cross-border land freight sector.
A transport hub at the Malaysia-Thailand border is in the works to provide truck docking services to smaller land freight companies within Thailand. With support from the EnterpriseSG, we are also exploring the setting up of another transport hub in Laos to coordinate cross-border traffic in the Indo-China states.
We are also seeking new business opportunities by reaching out to companies that need to move various types of products, such as lithium batteries, electronic goods, solar panels, aircraft engines and refrigerated goods.
Further Streamlining Singapore Operations, Particularly T&E, to Improve Internal Cost Efficiencies
The lease on our Singapore premises at Jalan Besut is due to expire in 2024. We are firming up redevelopment plans to transform the site into a multi-storey warehouse cum office complex. To meet the primary criteria of a lease renewal by JTC, we plan to expand the area to approximately 254,041 sq ft, which is more than double the total land size currently. The estimated cost of redevelopment would be in the range of S$25-30 million.
When completed, the new complex will include a four storey air-conditioned and humidity-controlled warehouse linked to a six-storey office cum dormitory block. We will have our own dedicated warehouse with an area for producing customized crates/pallets and for packing services. The warehouse will also come with technologies like a barcoding system, heavy duty industrial elevators and an overhead crane for easier hoisting of cargo and machinery from the ground level. As part of the Group’s efforts to reduce its carbon footprint, diesel forklifts will be phased out progressively in favour of electric forklifts as well as replacing the older prime movers with the newer fuel efficient and environmentally-friendly Euro 6 version trucks.
After the approvals by the various government agencies and JTC are given, redevelopment work on the current site is expected to commence in the first quarter of 2019. When that happens, staff will be working temporarily from our sister company premises in Tuas, while operations personnel will function from a leased warehouse in the nearby Jurong Logistics Hub.
These three broad initiatives will reinforce our business foundation and position us for even stronger and more sustainable growth going forward.
On behalf of the Group, I would like to thank our customers, business partners and shareholders for your kind support. I would also like to assure shareholders that we are actively exploring options to enhance value for you and that we are fully committed to getting Chasen out of the SGX watch list.
Last but not least, I would like to thank my fellow board directors, management staff and all employees for their tireless efforts in making Chasen the service provider of choice for many companies and industries.
LOW WENG FATT
Managing Director & Chief Executive Officer