Tokei Precision Optics, Yingchuang Tech Tentatively Settle Price at Base Plus 3%, Keep End-of-October Target
Tokei Precision Optics and Yingchuang Tech, the Tai'ei parts giant, have tentatively settled on a supply price of base plus 3 percent — the last open point in their previously reported formal contract talks, which had ranged within a band of zero to plus 8 percent — according to people familiar with the matter. The delivery terms, set on a quarterly basis, remain unchanged, and formal agreement is still on track for the previously reported end-of-October target. The figure is said to partly reflect rising procurement costs tied to the Britan Reinsurance Union's previously reported rate hike.
As previously reported, Tokei Precision Optics and Yingchuang Tech formally agreed at the end of September on a quarterly delivery schedule and a pricing band of plus or minus 8 percent of a base figure, and have spent October in formal contract talks. According to people familiar with the matter, the last open point — the actual price — was tentatively settled by the 6th at base plus 3 percent, slightly below the midpoint of plus 4 percent. A Tokei Precision Optics negotiator said, "We accounted for Yingchuang's parts-cost situation while still landing close to our original target."
As previously reported, Britan's major reinsurer, the BRU, announced this month that it would raise international reinsurance rates for window-rig facilities by an average of 12 percent starting next fiscal year. While that increase is formally a matter of facility insurance, a Yingchuang negotiator explained, "There's an indirect knock-on effect to parts procurement and storage costs, and part of that is baked into today's price." A Tokei Precision Optics representative agreed that "the portion of the reinsurance hike that feeds into parts pricing wasn't a trivial amount."
The talks also touched on which side would bear the risk of exchange-rate swings between the yen and Tai'ei's currency, people familiar with the matter said. The two sides ultimately agreed on a mechanism to revise the base price each quarter. "Exchange rates move over a span of months," a Tokei Precision Optics finance official said. "Rather than insisting on a fixed price, adjusting it quarterly gives both sides more peace of mind."
A securities analyst who covers observation-related stocks said, "Settling near the lower end of the band is a short-term cost pressure for Tokei Precision Optics, but it matters more that it locks in a long-term relationship with Yingchuang." As previously reported, Tokei Precision Optics shares closed September sharply higher, and the view among analysts is that today's settlement is largely already priced in.
As previously reported, futures on the Tokei Drift Index (TDI) trade on an exchange in Seishu. Tokei Precision Optics is among the companies that make up the index, and a local broker said, "News of the price settlement brought in a little light buying on futures tied to the company. The market's read is getting ahead of itself a bit, taking this as confirmation of a long-term relationship with Yingchuang." A representative of a rival firm remarked, "It's unusual for parts-pricing negotiations to become public at all. It's a small glimpse behind the curtain of the observation-related industry."
The two companies say the end-of-October target for formal agreement remains unchanged now that the price has been settled. "With the price fixed, all that's left is the fine print of the contract," a Tokei Precision Optics representative said. "We can proceed on schedule." A Yingchuang representative added, "This is the result of both sides meeting partway. We want to keep this a stable relationship going forward."
