SINGAPORE (Aug 13): Logistics management company Chasen Holdings is mulling a separate listing of at least one of its subsidiaries in a bid to improve value for shareholders. Despite a recent improvement in earnings, Chasen shares are trading at a price-to-earnings ratio of just over five times. Chasen is also trading at just 0.4 times its book value of 18.3 cents.

“Right now, if you add up all the values of the subsidiaries, they far exceed the value of the parent company,” says non-executive chairman Eric Ng at a recent briefing. “So, the only thing to do is to let the subsidi­aries go, which means [to] realise the value of the subsidiaries.”

Ng sees two possibilities: The company could look for an investor to take a stake; or it could unlock value by listing the subsidiaries separately. There are three such units — two in China and one in Malaysia — that can be considered for a spinoff. The Hong Kong Stock Exchange’s GEM board, meant for smaller companies, is the location Chasen is eyeing.

So far this year, the company’s share price has risen 5.6% to close at 7.5 cents on Aug 8. This is a far cry from the high of 45.1 cents in September 2013, when Chasen moved from Catalist to the Mainboard.

Since then, the company has seen muted earnings. It went into the red for the first time in the past decade in the financial year ended March 31, 2013. From earnings of $7.3 million for FY2012, Chasen sank into losses of $5.4 million for FY2013. It blamed poor economic conditions for the lower operating earnings, but most of the red ink was caused by a $5.1 million write-off of debt that Chasen had to book for the settlement of a trade dispute. It also had to stomach another $3 million or so in bad debts.

On June 5, 2017, Chasen was added to the SGX Watchlist for failing to meet the minimum trading price of 20 cents for Mainboard companies. The company has till June 2020 to meet the criteria or face delisting.

While Chasen’s share price continues to languish, the company has made some improvement in its earnings. For FY2018 ended March 31, Chasen reported earnings of $5.5 million, more than double the $2.6 million of FY2017. Revenue in the same period was up 20.5% y-o-y to $127.9 million, owing to greater volume of specialist relocation services provided in China and the US.

On July 30, the company announced that it had won a relocation contract in China worth RMB51 million, or $10.2 million, which brings its total value of contracts on hand to $48.6 million. According to the company, relocation of factories is a growing trend as manu­facturers relocate from more expensive locations to cheaper ones in Southeast Asia.

Under the terms of the July 30 contract, Chasen will help to fit out a factory making flat-panel displays in Chuzhou, in China’s Anhui province. The contract is to be fulfilled between September this year and December 2019.

According to Chasen managing director, Low Weng Fatt, this is the first contract for the company’s subsidiary, Chasen Hi-Tech, after the latter relocated from Shanghai to the less expensive Chuzhou. A 110,000 sq ft warehouse, a nearly completed facility, will be the base from where Chasen can serve the customers.

Besides China, the company is active in markets such as Malaysia, Thailand and the US. For example, it is planning a transportation hub at the Malaysia-Thai border, to provide truck docking services to customers that want freight moved within the region. Chasen is mulling a similar transport hub in Laos as well.

In the US, Chasen is in negotiations with a “world-leading MNC contract electronics manufacturer with operations in Asia” and other US customers planning to onshore some manufacturing operations back to the US. Chasen’s US unit delivered its first full-year revenue in FY2018.

Even with all the overseas expansion plans, Chasen is not neglecting home ground Singapore. It is spending between $25 million and $30 million to redevelop its existing facilities on Jalan Besut.

According to the company, through redevelopment, the property can qualify for lease renewal under conditions imposed by landlord JTC Corp. Otherwise, the company will have to relocate by 2024. Besides extending its lease, the redevelopment will more than double available space to 254,000 sq ft. The completed property will include both warehousing and office space.

To be sure, the expansion and development plans both within and outside Singapore will be a strain on the company’s financial resources. As at March 31, the company had just $10.8 million cash, but $57.5 million in borrowings.

Non-executive chairman Ng prefers to borrow from banks instead of turning to shareholders, who might not necessarily be willing to support additional fund-raising. He is confident that the banks will lend. “If you look at my profit, I am able to service the loan. So, I don’t think it will be a problem,” he adds.

Ng has ambitions to keep growing the company. He points out that, in 2007, most of its revenue came from projects in Singapore. Over the years, the company has managed to build up the external wing as revenue from Singapore dried up.

As Chasen grows its presence overseas, Ng is eyeing $200 million in revenue by 2020. He knows it will not be easy and there is plenty of uncertainty, particularly for project-based businesses like his. The only answer, he says, is to try and win more projects. “It is an occu­pational hazard.”

This story first appeared in The Edge Singapore (Issue No. 843, week of Aug 13)