KB Kee presented his in-depth investment thesis on Rechi Precision (Taiwan: 4532) at Asian Investing Summit 2015.
Rechi Precision, trading at P/B of 1.6x, EV/EBITDA 7.2x, EV/EBIT 10.6x, dividend yield 6.37%, is the world’s #4 compressor manufacturer with 10% market share, up from 3.5% in 2000. Regionally, Rechi has 39% in Taiwan, 30% in North America, 3% in China, 12% in Europe, 9% in Japan, 13% in South America, 14% in ASEAN. Rechi also has niche dominance in compressor for the recreational vehicle (RV) market in North America with 60% market share and over 90% market share in heat-pump dryer in Europe in partnership with Bosch. Despite being not profitable for as long as the first ten years since it was established in 1989 due to the lack of production scale, Rechi persisted in pursuing the aspiration of achieving technical independence in the heart of the air-conditioner technology – the compressor – under the leadership of its chairman CHEN Sheng-tien who is also the chairman of parent Sampo Corp who owns a 25.4% stake in Rechi. Led by Chen and CEO Liu Jin-hsi, Rechi showed grit and determination in breaking past the milestone of an accumulative 100m units in 2014 and has plans to produce and sell another 100m units by 2020/21. We think the perseverance and focus is rare in Asian firms and this has attracted other strategic shareholders that include Taiwan steel giant China Steel Corp (2002 TT) with 4.91% stake and Japan’s electronics giant Sharp (6753 JP) 4.86%. Rechi’s open innovation business model to co-develop new products has also forged long-term partnerships that include BLDC motor (China Steel Corp, Sanyo-Panasonic), air purifier (Sharp), heat-pump dryer (Bosch). We think this is rare in Asian firms and Rechi deserves a valuation premium.
About the instructor:
KB Kee is the Managing Editor of The Moat Report Asia, a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia. The Moat Report Asia’s paid-subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investor who are lifelong learners in the art of value investing. KB was the head of research and fund manager at a Singapore-based value investment firm since 2002. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. KB was formerly the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has also taught accounting at the Singapore Management University (SMU), including the pioneering course Accounting Fraud in Asia.
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