Rechi Precision (4532 TT, NT$32.8, OP): May sales up 10.8% YoY, the highest May figure on record
KGI Greater China
10 Jun 2014
Available for Immediate Download
Event May sales were NT$1.62bn, down 5.9% MoM, but up 10.8% YoY. The figure was 7% below our forecast of NT$1.74bn, due to unexpectedly low shipments totaling 1.17mn units. Impact We forecast 2Q14 net margin of 23%. We slightly cut our 2Q14 sales projection by 5% to NT$4.99bn, and lower 2Q14 net income by 4% to NT$327mn, for EPS of NT$0.72, down from NT$0.75. Our downward revisions are due to: (1) the peak air conditioner season in China, which saw shipments hit 1.23mn units in April and 1.17mn units in May, below our forecast of 1.25mn units. We lower our 2Q14 shipment forecast by 5% to 3.57mn units; and (2) high production capacity utilization and orders are mainly large models which command higher ASP and gross margin. We forecast gross margin will rise from 16% in 1Q14 to 17.6%. 3Q14F sales will fall 7.9% QoQ, better than the seasonal average decline of 20-35%. We forecast sales of NT$4.59bn in 3Q14, down 7.9% QoQ, which is less steep than the seasonal average decline of 20-35%. The improved performance stems from Rechi Precision’s success in branching out into the dryer, camping vehicle and air purifier compressor markets. These products carry high gross margins and take up production capacity left idle by air conditioner compressors when they enter the slow season in July. We forecast EPS of NT$0.60 in 3Q14, down 16.6% QoQ, but up 28.2% YoY. Valuation & Action Shares are trading at a respective 12.6x and 10.9x our 2014F and 2015F EPS. We forecast ROE of 15.3% in 2014 and 15.6% in 2015, both higher than the peer averages of 10.8% and 12.1%. Earnings growth in 2014 will be 29.7%, also higher than the peer average of 24.9%. We reiterate Outperform and our target price of NT$41.0, implying 25% upside, based on 13.5x our 2015F EPS. Risks Fast capacity expansion of Chinese peers; raw material price volatility.