Pingtan Marine Enterprise Ltd.
Q4 2017 Earnings Call Transcript

Published: 15 Mar 2018

[Operator:]

Greetings, and welcome to the Pingtan Marine Enterprise 2017 Fourth Quarter and Year End Financial Results Conference Call. 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. It is now my pleasure to introduce your host, Katherine Yao of the Equity Group. Please go ahead, Katherine.

[Katherine Yao:]

Thanks, Kevin and good morning everyone. Thank you for joining us. Copies of the press release announcing the 2017 fourth quarter and year-end financial results are available on Pingtan Marine's Web site 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 Web site. 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 2017 fourth quarter and year-end conference call. In fiscal year 2017, Pingtan delivered strong operating and financial results. Despite the impact from Indonesia government in a return in our fishing operations in Indonesian water. We believe that Indonesian government will ultimately support fishing company's like Pingtan. We were dedicated to emerging fishing territories and increasing production capacities and the product mix through expanding operating vessels in various fishing methods to harvest more higher margin fishing products. The management compared differnet approaches and realized that according fully licensed vessels from other companies will be the most convenient and the quickest way to increase our production capacity. In March 2017, we expanded our fleet through the purchase of five vessels, including one resaturated transfer vessel and four squid jigging vessel from Fuzhou Hong Long Ocean Fishery Co., Ltd. And these vessels have been deployed to operating International water successfully. At the end of 2017, we have placed 10 fishing vessels and one resaturated transfer vessels in international waters. In the year based on our observation on market development and trend, we have been paying close attention to new sales model for sea food and we initiated cooperation and exchanges with large e-commerce retailers and the shopping places. Since the second quarter of 2017, we have started partnership with major chain restaurants and the JD.com, one of China's largest ecommerce retailer. Under the strategic cooperation framework with JD.com, Pingtan will serve as JD's sole supplier for ribbonfish, tiger prawn and conger eel products harvested from the Arafura Sea, the Bay of Bengal and the Indo-Pacific Waters. Through Pingtan's cooperation with JD.com our innovation continues with online seafood retail business. 12-months of efforts from both JD and Pingtan team, we have successfully left three of our fish products including pomfret, yellow croaker and ribbonfish hut on JD.com in the first week of January 2018. As of today, we have made a record online sales of over 10,000 pieces of fish products, capturing Pingtan's ecommerce customers. Our online success has motivated us to expand our product categories on JD.com and satisfy increasing consumer demand. As always, we will keep our investor appraised of our development and we welcome any helpful suggestions and introductions. We are privileged to implement quarterly cash dividend policy as our continued shareholder rewarding program. On January 24, 2018, we were pleased to announce our first quarter cash dividend of 2018 as of $0.01 per share of common stock outstanding. To shareholders of record on February, 06 and the dividend were paid in cash on or about February 15, 2018. This marks Pingtan’s 13th consecutive quarterly dividend to our shareholders and we expect announce our next quartely cash dividend in mid-April. Pingtan is committed to building China’s leading global integrated supplier of deep ocean natural products and the continuous development in the food consumer market. Looking forward, we intent to accelerate the construction of our processing facility and expand our fishing territory to enrich product mix. And expand our market share through online retail business. Now, our CFO, Mr. Roy Yu, will discuss operational and financial results for the fourth quarter and year of 2017. On behalf of our Company, I look forward to meeting you in person. And as always, welcome to our head quarters in Fuzhou and take a tour. Thank you. I would now like to turn the call over to Mr. Roy Yu, Chief Financial Officer for Pingtan Marine Enterprise. Please go ahead Mr. Yu.

[Roy Yu:]

Thank you, Katherine. Good morning, and welcome everyone. Today, I will discuss Pingtan Marine's 2017 fourth quarter and year ending operational and financial results. As we previously disclosed, Pingtan's financial results were still affected by Indonesian's government's moratorium on issuing new fishing licenses and renewals. So that the country's Ministry of Maritime Affairs and Fisheries could monitor the operations of existing fleets to fight illegal fishing activities. In November 2015, the Indonesian government announced that it had concluded as the government has not amended new fishing policies or resumed the licenses renewal process if the company does not know when exactly licensing and renewal will start. Since the company derived majority of its revenue from this area, this trend has caused a significant drop in production. In September 2017, the company was informed about the fishing license of 13 vessels deployed to Indo-Pacific Waters, which were suspended and vessels were docked in the port by the Ministry of Agriculture and Fisheries of Democratic Republic of Timor-Leste. The MAF is investigating whether false statements were made during the licensing process and the vessels were registered in Indonesia. The company disputes these allegations. As of December 31, 2017, among the company's 140 fishing vessels, l2 are operating in the Bay of Bengal in India, 11 are operating in international waters, including one refrigerated transport vessel, 13 are located in the Democratic Republic of Timor-Leste but are currently not operating as we described above. The remaining vessels are currently located in Indonesia, but are not operating due to the Indonesian government's moratorium discussed above. We catch nearly 60 different species of fish, including ribbonfish, croaker fish, pomfret, Spanish mackerel, conger eel and squid. All of our catch is shipped back to China. Our fishing vessels transport frozen catch to a cold storage warehouse nearby onshore fishing bases. We then arrange charter transportation ships to deliver frozen stock to cold storage warehouse located in one of China's largest seafood treating centers, Mawei Seafood Market in Fujian Province. We sale our products directly to customers, including distributors, restaurant owners and exporters. Most of our customers have long term cooperated relationships with us. Our existing customers also introduced new customers to us from time-to-time. In July 2017, we entered into an exclusive strategic cooperation agreement with JD.com to sale our fish products directly to consumers online. Now, I'd like to move to financial results. For the fourth quarter of 2017, our sales volumes were 5.4 million kilograms compared to 4.9 million kilograms in the fourth quarter of 2016. For the year ended December 31, 2017, our sales volume increased by 129.5% to 18 million kilograms from 7.8 million kilograms in year ended December 31, 2016. Pingtan reports its revenues from three months ended December 31, 2017 at $16.4 million compared to $13.2 million for the same period in 2016. The increase was mainly attributable to business expansion resulting from more fishing vessels put into operation. For the year ended December 31, 2017, the company’s revenues were $63.2 million increased by 207.7% from $20.5 million for the year ended December 31, 2016. The increase was primarily due to the increase in fishing activities. During the year ended December 31, 2017, the company purchased four squid jigging vessels to import its fishing capacity and placed 10 fishing vessels to operate in international waters. In comparison to only two fishing vessels operating in international waters during the year ended December 31, 2016. For the fourth quarter ended December 31, 2017, gross profit was $12.2 million compared to gross profit of $9.9 million in the prior year period. The gross margin for the fourth quarter ended December 31, 2017 was 74.5% compared to 75.1% for the same period in 2016. For the year ended December 31, 2017, gross profit was $22.1 million compared to gross loss of $8.8 million in 2016. Gross margin in full year 2017 was 34.9% compared to [negative] 42.8% in full year 2016. The significant increase in gross margin was primarily due to the increase in our sales revenue and the decrease in our unit production cost of fish. Our selling expenses include storage fees, insurance, safety and handling fees, custom service charge, tightened expenses and fishing vessel examination fees. Our self 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 to aggressively market and distribute our products. As a result, our selling expenses have been relatively small as a percentage of our revenue. For the fourth quarter ended December 31, 2017, selling expenses were about $0.5 million compared to $0.7 million in the prior year period. For the year ended December 31, 2017, selling expenses were $1.2 million remaining entrenched as that of the same period of 2016. For the three months ended December 31, 2017, our general and administrative expenses were $6.3 million compared to $0.9 million in the prior year period. The increment is due to depreciation of 104 vessels located in Indonesia but not operating as a result of moratorium mentioned, which was recorded as operation expense rather than cost of revenue. For the fiscal year ended December 31, 2017, total general and administrative expense was $9.6 million compared to $4 million in the same period of 2016. The increase was primarily due to increase in depreciation expense in professional fees and travel for investor conferences, as well as bad debt recovery based on periodic review of accounts receivable balances and management’s evaluation of collectible of receivable balances. Pingtan reported a net income attributable to owners of the company of $4.8 million for the fourth quarter of 2017 or $0.06 per basic and diluted share compared to net income attributable to the owners of the company of $8.4 million or $0.11 per basic and diluted share in the prior year period. The decrease was mainly due to management's sales policy since 2018 Lunar New Year is in February, which is the peak season for the seafood sales in China. The company reported net income attributable to owners of the company of $29.7 million for the year-ended December 31, 2017 or $0.38 per basic and diluted share compared to net loss attributable to owners of the company of $13.7 million or minus $0.17 per basic and diluted share in full year 2016. The increase was due to increase of fishing vessels operating in international water as described above. On the balance sheet as of December 31, 2017, Pingtan’s cash and cash equivalents were $2 million, total assets were $201.1 million, total loans and debts was $17.2 million and shareholders’ equity was $147.5 million compared to $0.8 million, $226.5 million, $21.8 million and $139.7 million respectively at December 31, 2016. 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 on our vessels by Timor-Leste. We continue focusing on territory and fleet expansion in increased fishing methods to further increase production capacity and enrich product mix. We anticipate enter the seafood 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 country, China inland provinces. With that, operator, let's start the Q&A session. 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.

[Roy Yu:]

Thanks again to all of you for joining us today. We look forward to speaking with you again in May when we report our first quarter 2018 financial results.

[Operator:]

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.