Chasen Holdings (SGX:5NV): Can ROCE Recovery and Capital Growth Deliver Multi-Bagger Returns?

Chasen Holdings (SGX:5NV) has undergone a dramatic transformation over the past five years, moving from sustained losses to a modestly profitable enterprise. Yet, its Return on Capital Employed (ROCE) of 1.7% as of March 2025—below the Commercial Services industry average of 4.8%—raises critical questions about whether its capital reinvestment strategy can sustainably elevate returns. This analysis explores whether the company's improving trajectory, paired with a 39% expansion of its capital base, can overcome structural challenges and deliver outsized gains for investors.

ROCE: A Fragile Improvement

Chasen's ROCE has risen from losses five years ago to its current 1.7%, a sign of operational stabilization. However, this metric remains well below industry peers, suggesting inefficiencies in converting capital into earnings. reveals a slow climb, with ROCE fluctuating between negative and marginal positives until recently. The company's 2024 net loss of S$11.81 million (TTM) and a net profit margin of -10.15% underscore lingering profitability issues.

The root cause lies in its business mix. Revenue from core segments like Specialist Relocation Solutions and Technical Engineering fell sharply between 2021–2023, with declines of 9.89% and 36.62%, respectively. Only the U.S. market showed growth, while regions like Malaysia and Vietnam saw revenue collapse. This uneven performance suggests Chasen's capital allocation has yet to align with high-growth opportunities.

Capital Reinvestment: A Double-Edged Sword

Chasen's capital employed has surged by 39% since 2020, funded partly by current liabilities, which now account for 51% of total assets. While reinvestment signals management's belief in growth opportunities, the heavy reliance on short-term debt introduces liquidity risks. Its Debt-to-Equity ratio of 100.8% further amplifies financial fragility.

The company's strategy hinges on scaling its profitable U.S. operations and stabilizing Southeast Asian markets. Yet, with ROCE still subpar, investors must ask: Is capital being deployed into high-return ventures, or merely propping up declining segments? Without clearer evidence of margin expansion or a shift toward higher-margin markets, the capital base's expansion may dilute returns further.

Industry Benchmarking: A Steep Hill to Climb

The Commercial Services sector's average ROCE of 4.8% acts as a critical benchmark. Chasen's current ROCE of 1.7% implies it must nearly triple its efficiency to match peers—a daunting task. Even Deutsche Bahn, a far larger entity, managed an ROCE of -0.6% in 2024 after years of restructuring, highlighting the difficulty of turning around such metrics.

Chasen's valuation offers a glimmer of hope: Its intrinsic value of S$0.106 (vs. a current share price of S$0.068) suggests a 36% undervaluation. However, this assumes ROCE improves to industry levels—a leap requiring not just profitability but also disciplined capital management.

Financial Risks: Leverage and Volatility

The company's high leverage is its Achilles' heel. With current liabilities exceeding half its assets, a liquidity crunch could force abrupt cost cuts or asset sales. Recent stock price volatility—down 32.7% over a year despite a five-year 56% gain—reflects investor skepticism about its ability to stabilize.

Moreover, its declared special dividends (e.g., S$0.03 per share in late 2024) contrast with widening losses, raising concerns about capital allocation priorities. Dividends may soothe shareholders, but they divert funds from growth initiatives, potentially delaying ROCE improvement.

Investment Thesis: High-Risk, High-Reward

Chasen's story is one of potential versus peril. On the positive side:
- Geographic Diversification: The U.S. market's 152% revenue growth in 2023 hints at untapped opportunities.
- Valuation Discount: At 36% below intrinsic value, shares offer a margin of safety if ROCE improves.
- Long-Term Turnaround: A 56% five-year stock return suggests some investor belief in its revival.

However, the negatives loom large:
- Profitability Gaps: Negative net income and low ROCE indicate unresolved operational inefficiencies.
- Debt Overhang: A 100.8% Debt-to-Equity ratio limits flexibility during downturns.
- Industry Underperformance: The Commercial Services sector's average ROCE remains a distant target.

Conclusion: A Speculative Play, Not a Core Holding

Chasen Holdings presents a compelling speculative opportunity for investors willing to bet on a turnaround. Its undervalued shares and potential for ROCE improvement create a favorable risk-reward profile—if management can execute a disciplined strategy to:
1. Redirect capital toward high-margin regions like the U.S.
2. Reduce reliance on short-term debt to stabilize liquidity.
3. Achieve gross margins above 20% (currently 18.21%).

Yet, the path to a “multi-bagger” return requires overcoming significant hurdles. Unless ROCE surpasses 4.8% within two to three years—a feat few companies achieve—Chasen remains a high-risk bet. For now, the stock is best suited for aggressive investors with a long-term horizon, not those seeking stability.

Final Take: Chasen's journey from losses to marginal profits is commendable, but its leverage and subpar ROCE limit its upside. Investors should proceed with caution, monitoring debt levels and margin trends closely before committing capital.