CHASEN HOLDINGS had a loss-making FY13 (ended March 31), its first since its listing in 2007, mainly because of write-offs and provisions totalling about $8 million.
This was explained at some depth at a results briefing recently. Chasen had to write off S$5.1m after settling a trade dispute involving a Singapore project.
And, as required by its new China auditor, Chasen had to book S$1.2m advance marketing expenses and provide for S$2m paid for an asset purchase (all of which may be written back in this financial year).
But a more interesting insight into the business emerged from the results briefing/discussion.
Management mentioned that two global Korean electronic manufacturers planned to relocate their factory operations to China, and Chasen stood to gain the business.
That led to a couple of questions, starting with: Why Chasen's optimism? What's the competition like?
Turned out that in the specialist relocation business in China for TFT LCD equipment, there is only 1 competitor -- a Japanese firm (which is staffed with a number of ex-Chasen employees).
In the relocation of wafer fabs in China, Chasen is also just as fortunate as it has only to compete with 1 firm -- from Taiwan.
What about local Chinese firms?
The big picture is, relocating high-tech equipment is not within every Joe's capability, and clients will not entrust the job to any company other than established ones.
That is understandable as the equipment to be relocated cost millions, even tens of millions, of dollars. It's not just the equipment that is at stake but also lost revenue arising from any damage leading to delays in production.
Given these barriers to entry, the relocation specialists are just one or two foreign players, although Chasen's management reckoned it would be a matter of a few years before some local players emerge.
(In Singapore, Chasen has no competitor).
As an example of the size of such a job, consider that Chasen booked RMB50 million in revenue for relocating, and installing equipment for, a 8.5-Generation TFT LCD factory from overseas to Shenzhen between March 2011 and end-2011.
Chasen has just announced three projects worth a total of RMB14.6 million (approximately S$2.9 million).
(i) move-in of equipment and related services for an 8.5G TFT/LCD manufacturer in Beijing, PRC;
(ii) move-in of equipment and related services for an 8.5G TFT/LCD manufacturer plant extension in Shenzhen, PRC and
(iii) move-in of equipment and related services for a 6.5G TFT/LCD manufacturer in Xiamen, PRC.
In the past, Chasen achieved 100% of such jobs which were put up for tender. The clients usually mitigated their risk by splitting a relocation project into two by giving some business to a competitor of Chasen.
|Relocation jobs are one-offs. Because of fewer jobs in FY13, Chasen's revenue from this business segment fell from S$42.7 million in FY2012 to S$17.8 million in FY13.
However, relocation jobs tend to be higher margin businesses, with Chasen reporting 26.2% and 40% in FY2013 and FY2012, respectively.
Its two other business segments are technical and engineering services, and third party logistics. It has competitors aplenty there and the profit margins tend to be lower, as a result.
For FY2013, the gross margins were 26.6% and 14.8%, respectively.
A new business will start contributing in 2QFY14 (from July this year) but the profit for the year will not be significant.
This is a water treatment plant in Jilin which Chasen has taken over from the Jilin Economic Technology Development Board.
Chasen's FY2013 results announcement is available on the SGX website.
UNITED ENVIROTECH has record FY13, CHASEN bags 7 projects