Local automobile parts manufacturer Hiroca Holdings Ltd (廣華控股) yesterday said that robust demand for more profitable sport utility vehicle (SUV) parts would offset the impact of weak automobile sales in China this year.
The company reported NT$191.1 million (US$6.02 million) in net income for last quarter, up 4.82 percent from NT$182.3 million in the first quarter.
Sales last month declined 10.53 percent year-on-year to NT$649.95 million from NT$725.41 million.
“As a pure original equipment manufacturer, we have little control over revenue growth and product mix, as the company is entirely dependent on the whims of just-in-time inventory management employed by our clients,” Hiroca president Huang Chien-chung (黃建中) told an investors’ conference.
The company said that progress at its new Mexican plant has reached 38 percent and it would be fully completed in the second half of next year.
The Mexican plant represents a significant milestone in the company’s strategic vision to better serve and participate in joint research and development efforts with its US and Japanese clients in the North American market, the company said.
Huang said that while growth in demand had been slower than anticipated in the Chinese marker, demand is not receding. In particular, Chinese consumers have begun favoring SUVs, with the sales contribution rising from 10 percent in 2012 to 22 percent in the first half of this year.
“Although orders for SUV parts do not significantly boost our revenues, they do offer better margins,” Huang said.
As anti-Japan sentiment is quickly fading in the Chinese market, the company is expecting sales this month and in the rest of the second half to be driven by new SUV models, such as the Nissan Murano, Huang said.
In order to ensure that there are enough workers to man its Dongguan plant, the company had had to raise monthly wages from 1,310 yuan to 1,600 yuan (US$211 to US$258), which eroded its profit margin by 1.3 percentage points last quarter.
Rising labor costs are to remain a drag on profits for the rest of this year, but the company is expecting automation to yield significant savings next year.
To diversify its risk exposure to fluctuations in the Chinese market and to tap a recovery in the US auto market, Hiroca said that on Friday last week its board approved the acquisition of Detroit, Michigan-based Hirosawa Automotive Trim USA Co from a holding company.
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