Pingtan Marine Enterprise Ltd.
Q1 2018 Earnings Call Transcript

Published: 13 May 2018

[Operator:]

Greetings, and welcome to the Pingtan Marine Enterprise 2018 First Quarter Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. I'll now like to turn the conference over to your host, Katherine Yao of the Equity Group.

[Katherine Yao:]

Thanks Tana, and good morning, everyone. Thank you for joining us. Copies of the press release announcing the 2018 first quarter financial results are available on Pingtan Marine's website at www.ptmarine.com. You are also welcome to contact our office at 212-836-9600 and we'll be happy to send you a copy. In addition, this broadcast will be made available at Pingtan Marine's website. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that may affect Pingtan Marine's business and prospects and results of operation. Such risks are fully detailed in Pingtan Marine's filings with the Securities and Exchange Commission. I would now like to take a moment to outline the format for today's call. In order to take care of all conference call participants, this call will be conducted in both English and Chinese. First of all, Company's Chairman and CEO, Mr. Xinrong Zhuo, will read a prepared opening statement in Mandarin, which I will then read in English. I will then turn the conference call to Mr. Roy Yu, Pingtan Marine's CFO, who will continue with the presentation. When he is finished, we will open the floor for questions. For the question-and-answer session, please allow us a moment to translate the questions and then we will respond to everyone on the call in both English and Chinese. With that, I will turn the call over to Pingtan Marine's Chairman and CEO, Mr. Xinrong Zhuo. Please go ahead, Mr. Zhuo.

[Xinrong Zhuo:]

Good morning. Thanks for joining our 2018 first quarter conference call. The first quarter of 2018 was a good time of good news for Pingtan. In the past quarter, two large scale fishing vessels were deployed in international water have started operation after arriving at their designated fishing water, which resulted in production expansion and led to delivery of overall strong operating results by the company. In early January, we began sales in one of China's largest e-commerce retailer JD.com after several months of operations. Pingtan has achieved nationwide retail sales. That has increased [Indiscernible] and the selling direct retail and consumers reduce procurement cost and increased profit. The cooperation between Pingtan and JD.com accomplished wonder. The partnership with JD.com provided us with experienced in online fish retail business and we believe it will also accelerate our base to farther entrance to their full consumer market. Also during the first quarter of 2018, 27 of our fishing vessels received approval to operate in the international waters of Indian Ocean from the Ministry of Agriculture and Rural Affairs. And we immediately begin their modification and rebuilding of these vessels. The 27 vessels were remodified and upgraded into large scale fishing vessels with highly technical fishing gear and focusing on harvesting tuna, squid, mackerel and other higher margin fish product. We expect significantly improvement in both our production capacity and revenue. We expect to put some of the 27 vessels in operations by the end of this year. And all 27 vessels will be operational by the first half of 2019. As always we will keep our investors upgrade of our development and we welcome any helpful suggestions and introduction. On April 16, we announced a quarterly cash dividend of $0.01 per share of common stock outstanding to shareholders of record on April 30, 2018. And dividend will be paid in cash on or around May 15, 2018. It marks Pingtan's 14 consecutive quarterly dividends to our shareholders and we expect to announce our next quarterly dividend in mid July. We anticipate continuing quarterly cash dividends to our steady investors rewarding program and/or confidence in Pingtan's development. On the behalf of our company I look forward to meeting our investors in person and as always welcome to our facility in Fuzhou and take a tour. Thank you.

[Katherine Yao:]

I will now like to turn the call over to Mr. Roy Yu, Chief Financial Officer, and Pingtan Marine Enterprise.

[Roy Yu:]

Thank you, Katherine. Good morning and welcome everyone. Today, I'll discuss Pingtan Marine's 2018 first quarter operation and financial results. As we previously disclosed, Pingtan's financial results was too affected by the Indonesian government's moratorium of issuing new fishing licenses and renewals. So that the country's Ministry of Maritime Affairs and Fisheries could monitor the operation of existing fleet to fight illegal fishing activities. In November 2015, the Indonesian government announced that the moratorium had concluded. The Indonesian government has not implemented new fishing policies or resumed the license renewal process, the Company does not know when exactly licensing and renewal will start. Since the Company derived a majority of its revenue from this area, this ban has caused a significant drop in production. In September 2017, the Company was informed that the fishing licenses of 13 vessels deployed to the Indo-Pacific waters were suspended and the vessels were docked in the port by the Ministry of Agriculture and Fisheries of the Democratic Republic of Timor-Leste. The MAF is investigating whether false statements were made during the licensing process and the vessels were simultaneously registered in Indonesia. The Company disputes these allegations. As of March 31, 2018, among the Company's 140 vessels, 12 are located in the Bay of Bengal in India; 11 are located in international waters including 1 refrigerated transport vessel; and 13 are located in the Democratic Republic of Timor-Leste but are currently not operating as described above. 27 vessels are under modification and rebuilding. Now I'd like to move to financial results. For the first quarter of 2018, or sales volume was 3.92 million kilogram, increased by 76.3% from 2.22 million kilogram in the first quarter of 2017. Pingtan reports its revenues from three months ended March 31, 2018 at $10.9 million compared to $5.7 million for the same period in 2017. The increase was primarily attributable to more fishing vessels deployed to international waters for operation. For the first quarter of 2018, gross profit was $5.6 million compared to $0.063 million in the prior year period. The gross margin increase increased to 51.5% for the three months ended March 31, 208 from 1.1% in the same period last year. The increase was primarily due to the decrease in our unit cost of fish resulting from deploying more fishing vessels to international water for operations. Our selling expenses mainly shipping and handling fees, insurance, custom service charge, storage fees and hiring expenses. Our sales activities are conducted through direct selling by our internal sales staff, because of the strong demand for our products and services we do not have aggressively market and distribute our products. As a result, our selling expenses have been relatively small as a percentage of our revenue. For the first quarter of 2018, selling expenses were $0.5 million compared to $0.4 million in the prior year period. The increase was mainly due to the difference incurred fishing vessel mix and the company purchased insurance for new fishing vessels deployed in late 2017. For the three months ended March 31, 2018, our general and administrative expenses were $3.1 million compared to $1.1 million in the prior year period. The increase is primarily due to recording the depreciation of approximately $1.6 million as operating expense rather than cost of revenue for vessels located in Indonesian and Indo Pacific waters that are not operating as a result of the reasons mentioned above. Pingtan reported a net of $1 million for the first quarter of 2018 compared to net income of $10.8 million in the prior year period. The decrease was partially due to one off loss of $2.2 million on fixed asset disposable of 27 fishing vessels dismantle for modification and rebuilding compared to now for the three months ended March 31, 2017. Excluding the one off loss of $2.2 million, the net income would be $3.2 million for the three months ended March 31, 2018. Net income attributable to owners of the company for the three months ended March 31, 2018 was $0.9 million or $0.01 per basic and diluted share compared to net income attributable to owners of the company of $9.9 million or $0.13 per basic and diluted share in the same period of 2017. On the balance sheet as of March 31, 2018, Pingtan's cash and cash equivalents were $3.8 million, total assets were $205.5 million, total long term debts was $17.9 million and shareholders' equity was $153.3 million compared to $2 million, $201.1 million, $17.2 million and $147.5 million respectively at December 31, 2017 To conclude, we will continue and be obligated to operate with the government authorities in hopes of accelerating implementation of new fishing policies in Indonesia and the investigation of our vessels by Timor-Leste. We continue focusing on territory and fleet expansion and increased fishing methods to further increase production capacity and enrich product mix. We anticipate entering the seafood de-processing market and reach directly to end consumers, both online and offline. Meanwhile, we will further explore ecommerce seafood retail business with JD.com to enhance the entire industry chain and develop new distribution channels to China and China inland provinces.

[Katherine Yao:]

With that, operator, let's open it for any questions for the question-and-answer session. Please allow us a moment to translate the questions and then we will respond to everyone on the call in both English and Chinese.

[Operator:]

[Operator Instructions] Your first question comes from the line of [Michael Yeh from Teiking]. Please proceed with your question.

[Unidentified Analyst:]

The first question is that for the company's 2018 first quarter gross margin accounts for about 51% compared to 74% of the prior year. So with the good news and new operation including retail, could you explain why there is a decrease in the gross margin. And the second question is that will like to know for the first quarter 2018 what is the percentage of the retail sales versus the wholesale and if there any plan for the company to give percentage of the retail and wholesale in the future?

[Xinrong Zhuo:]

Thank you for your question. To answer your first question, gross margin for our 2018 first quarter 2018 moderate and compares to 2017 the first quarter was much higher is because due to the orders need some adjustments in initial numbers and which cost look to much higher level compared to first quarter of 2018. And for your second question that as you know that we just started to cooperate with JD.com since January. And up to now it's been a very positive result. We have seen very positive results from this partnership. And recently we've been invited to attend their April conference with fresh vendors and with all the partners of JD.com, we come to sit down together and talking about how to cooperate the next step and how to get much closer relationship to provide us more products online. Please understand that we just started our online sales and I'll like to ask you to give us some time to - for you to understand that we have to shift from wholesale to retail are a transformation period and we have to hire new professionals. We need some time. So also for the retail, the percentage of retail online right only account not even to 1% of our total sales. We hope in the future that we can increase our percentage of retail - online retail to create better situation for JD, for us and also for the end consumers. And also we believe this is a very good opportunity for brand grade duty and we look forward to work with JD.

[Operator:]

There are no further questions at this time. And I'd like to turn it back to management for closing remarks.

[Roy Yu:]

Thanks again to all of you for joining us today. We look forward to speaking with you again in August after we report our second quarter financial results. And as always we welcome any investors to our office in Fuzhou in China. Thank you.

[Operator:]

This concludes today's conference. You may disconnect your line at this time. Thank you for participation.