Rechi Profits from High Demand and Prices for Compressors

Thanks to tight supply and resulting price hikes, the Rechi Precision Co., Taiwan's largest manufacturer of precision compressors, chalked up record sales in the first four months of the year and predicts new highs for both sales revenues and profits for all of 2004.

The company has reported pretax earnings of NT$252 million (US$7.52 million at NT$33.5:US$1) in the first four months, surpassing the NT$240 million (US$7.16 million) earned in all of 2003. With a current paid-in capital of N$2.074 billion (US$61.91 million), the company yielded pretax earnings of NT$1.2 (US$0.03) per share for the period.

Rechi, a subsidiary of the Sampo Group (one of Taiwan's largest makers of home appliances and consumer electronics products), was established eight years ago and initially concentrated on the production of scroll compressors. Over the past several years, however, it has expanded its product line to include not only refrigerator scroll compressors but also reciprocating- and screw-type compressors.

A flood of orders from at home and abroad has kept Rechi scrambling to keep up since the beginning of this year. It is now able to roll out 18,000 compressors every day, or one each 4.8 seconds.

Lee Wen-chin, the company's president, says that global demand for air compressors amounts to 30 million units a year, and that distributors usually maintain a one-and-a-half-year inventory. Last year, manufacturers cut production and struggled to digest inventories as demand fell and the prices of raw materials rose.

The market has turned strong this year, however, in response to heated sales of air conditioners and refrigerators in anticipation of a long hot summer throughout the world as well as booming demand from mainland China. The mainland alone is expected to need more than 21 million compressors in 2004.

The global shortfall in supply for the year is projected at four million units. This situation, Lee says, has produced chaos in the market; it is good news for his company, however, as domestic home appliance manufacturers, including Taiwan Kolin Co., Sanyo Electric (Taiwan) Co., and Sampo Corp., are waiting at Rechi's assembly line for the compressors they so desperately need.

Lining Up for Products

"With our customers rushing to take products directly from our production facilities," the president comments, "we've seen our production running at full capacity and this situation will continue into next year."

The company is targeting NT$400 million (US$11.94 million) in pretax earnings for the year. The figure for April alone was NT$86 million (US$2.56 million), nearly triple the NT$32 million (US$955,220) taken in during the same month of 2003 and a record monthly high.

Rechi says that it has achieved improved production efficiency through the adoption of a division-of-labor strategy between Taiwan and mainland China, where production was launched to provide quick services to local customers including such top mainland air-conditioner makers as the TCL Corp., Haier Group, and Midea Group.

"Thanks to our production deployment across the Strait," Lee notes, "we've developed maximum synergies in materials procurement, production schedules, and production efficiency." After three years of operating losses, the mainland plant has finally caught up with the production volume and efficiency achieved in Taiwan.

One institutional investor notes that compressor makers usually encounter sluggish demand in the second and third quarters of the year, but Rechi expects to turn a profit in every quarter of 2004 and to challenge NT$3 (US$0.08) in pretax earnings per share for the year.