Pingtan Marine Enterprise Ltd.
Q4 2016 Earnings Call Transcript

Published: 9 Mar 2017

[Operator:]

Greetings and welcome to the Pingtan Marine Enterprise 2016 Fourth Quarter and Year End Financial Results. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to, Katherine Yao of the Equity Group. Please go ahead Ms. Yao.

[Katherine Yao:]

Thank you and good morning, everyone. Thank you for joining us. Copies of the press release announcing the 2016 fourth quarter and yearend 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 will 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, the company's Chairman and CEO, Mr. Xinrong Zhuo, will read our prepared opening statements in Mandarin, which I will then read in English. I will then turn the conference call over 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 to take 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 now turn the call over to Pingtan Marine's Chairman and CEO, Mr. Xinrong Zhuo.

[Xinrong Zhuo:]

Good morning, thanks for joining our 2016 fourth quarter and year end conference call. In fiscal year 2016, Pingtan’s operating results were still affected by Indonesian moratorium and even though the Indonesian government has concluded the suspension in November 2015, it has not yet implemented new fishing policies and our fishing vessels could not resume fishing in Indonesian waters of today. For inside step the Indonesian government will ultimately support fishing companies like Pingtan and allow us to operate in its fishing territory. Since 2015our management has adjusted our strategy to expand our fishing territories and [indiscernible] Pingtan as a fishing company with global presence. Through their effort they’ve finally achieved the potential progress in the fourth quarter 2016 and finally ended the losses for previous six consecutive quarters. In November 2015, we have deployed 13 of our fishing vessels to the Indo-Pacific waters. In December 2016, we have deployed additional two large scale squid jigging vessels to international waters of the Pacific and Atlantic Oceans, and 4 tuna longline vessels to the international waters of the Pacific Ocean in the first quarter of 2017 to focus on higher margin fishing products through these efforts. Since the first quarter of 2016, we have started to recover our expansion capacity to about 30% and returned to profitability with fourth quarter EPS exceeding $0.08 per share. Since 2014, we’ve implemented quarterly cash dividend policy as our sincerity to share our performance results as well as to attract organic due to our shareholders support. In mid-January, we were pleased to announce our 2017 fourth quarter cash dividend of $0.01 per share of common stock outstanding to shareholders of record at January 31and the dividends were paid to yield cash on February 15, 2017. It marks Pingtan’s last consecutive quarterly dividend for shareholders. We intend to the continued payment of cash dividends on a quarterly basis and expect to announce our second quarter dividend in upcoming weeks. Meanwhile, we expect to adjust quarterly dividend rate in accordance with our earnings performance, as we are confident in further development and delivering of solid operating results based on the increasing demand in China. Pingtan is committed to building China’s leading [indiscernible] deep ocean natural fishing product company. Looking forward we will continue to focus on expanding our fishing region to increase harvest volume and enrich product mix and to innovate and integrate our existing resources to further penetrate into mainland areas and the retail market. As always we will keep our investors updated of our development and we’ll welcome any hopeful suggestions and introduction. On behalf of our company I look forward to meeting many of you in person and as always welcome to our facilities in Fuzhou and take a tour. Thank you. I would now like to turn the call over to Mr. Roy Yu, Chief Financial Officer of Pingtan Marine Enterprise. Please go ahead, sir.

[Roy Yu:]

Thank you. Good morning and welcome everyone. Today, I will discuss Pingtan Marine's 2016 fourth quarter and year end operation and financial results. As we previously disclosed, Pingtan's financial results were still affected by the Indonesian 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 the moratorium had concluded. The company's expectation is that the Government will implement new fishing policies and resume the license renewal process, although this has not yet occurred. In the interim, Pingtan's financial results will continue to be materially adversely affected by this moratorium. We currently operate 135 fishing vessels, 13 are operating in Indo-Pacific waters; 12 are operating in the Bay of Bengal in India; 2 are operating in international waters of Southwest Atlantic and Southeast Pacific Oceans; 4 will be deployed to international waters of Pacific Ocean in the first quarter of 2017, and the remaining vessels are licensed to operate in the Arafura Sea in Indonesia, but temporarily not operating due to the moratorium. As a result, our sales for the year ended December 31, 2016 decreased significantly as compared to the year ended December 31, 2015. We catch nearly 20 different species of fish including ribbon fish, croaker fish, pomfret, Spanish mackerel, conger eel, squid and red snapper. All of our catch is shipped back to China. Our fishing vessels transport frozen catch to cold storage warehouse nearby onshore fishing bases. We then arrange charted transportation ships to deliver frozen stocks to cold storage warehouse located in one of China’s largest seafood treating center, Mawei Seafood Market in Fujian Province. We sell our products directly to customers and most of our customers are sole proprietor regional wholesaler in the proxy [ph]. We recognize revenue from customers; receive purchase goods at our cold storage warehouse. After payments a receipt of credit sales is approved for recurrent customer with excellent payment histories. We do not offer promotional payment, customer coupons, rebate or other cash redemption offered to customers. We do not accept returns from customers. Deposits or advance payments from customers prior to deliver rate of goods are reported as advance from customers. Now, I would like to move to financial results. For the fourth quarter of 2016, our sales volumes were 4.9 kilograms compared to 4.8 million kilograms in the fourth quarter of 2015. For the year ended December 31, 2016, due to the moratorium in Indonesia, our sales volumes decreased 63.8% to 7.8 million kilograms from 21.6 million kilograms in the year ended December 31, 2015. Pingtan reports its revenues for the three months ended December 31, 2016 at $13.2 million, compared to $14 million for the same period in 2015. For the year ended December 31, 2016, the company’s revenues were $20.5 million, compared to $60.7 million. In the year ended December 31, 2016, the decrease was primarily due to the decrease in sales volumes resulting from the moratorium described above as well as the decrease in average unit sales price from the different sales mix. For the fourth quarter ended December 31, 2016, gross profit was $9.9 million, compared to gross loss of $8.9 million in the prior year period. The gross margin was 75.1%, compared to minus 64%. The increase was primarily due to significant decrease in cost of revenue namely fuel cost, labor cost and maintenance fee as a result of the moratorium described above. For the year ended December 31, 2016, gross loss was $8.8 million, compared to gross loss of $2.8 million in 2015. Gross margin in full year 2016 was minus 42.8%, compared to minus 44.6% in full year 2015. The decrease was primarily due to the reduced scale of operation resulting from the moratorium described above. Our selling expenses mainly include storage fee, insurance, shipping and handling fee, customer service charge, advertising expense and fishing vessels donation [ph] fees. 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 expense has been relatively small as a percentage of our revenue. For the fourth quarter ended December 31, 2016, selling expenses was $0.7 million, compared to $0.5 million in the prior year period. For the year ended December 31, 2016, Selling expenses were $1.2 million, compared to $1.9 million in the prior year period. The decrease was primarily due to the same reason described above which results in decrease in shipping and handling fee, storage fee, customer service charge and advertising expenses, partially offset by the increase in insurance cost. For the three months ended December 31, 2016, our general and administrative expenses were $0.9 million, compared to $0.4 million in the prior year period. For the fiscal year ended December 31, 2016, total general and administrative expense was $4 million, compared to $2.9 million in the same period of 2015. The increase was primarily due to increase in depreciation expense interest interval for investor preferences [ph] as well as bad debt based on our corrected review of accounts receivable balances, management’s evaluation of the correct ability of receivable balances and increase in other miscellaneous [ph] items, partially offset by decrease in professional fees. Pingtan reported a net income of $6.7 million for the fourth quarter of 2016 or $0.08 per basic and diluted share, compared to a net loss of $9.1 million or $0.11 per basic and diluted share in the prior year period. The company reported a net loss of $15.5 million for the year ended December 31, 2016 or minus $0.20 per basic and diluted share, compared to net income of $18.4 million or $0.23 per basic and diluted share in full year 2015. On the balance sheet, as of December 31, 2016, Pingtan’s cash and cash equivalent was $0.8 million, total assets were $224.7 million, total long-term debt was $21.8 million and shareholders’ equity was $167.9 million, compared to $11.4 million, $231.9 million, $22.6 million and $166.8 million respectively at December 31, 2015. Based on the current status of our developed fleet of fishing vessels and production capacity, we reiterate our previously provided 2017 first quarter EPS guidance of between $0.08 and $0.0. To conclude, we will continue to be obligated to cooperate with the Indonesian government in hopes of accelerating implementation of the new fishing policies to a license fishing companies like Pingtan. We continue actively seeking to expand our fishing territories to increase our harvest volume, diversify our product mix, to properly utilize our assets, to reduce redundancy on single fishing region. We continue to develop and strengthen both new and existing sales and distribution channels to further expand into yielding provinces and direct retail markets.

[Katherine Yao:]

With that, operator, let's open it up for any questions. For the question-and-answer session, please allow us to take moment to translate the questions and then we’ll present everyone on the call in both English and Chinese. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question is coming from the line of Leo Bob with Bounded Security [ph]. Please proceed with your question.

[Unidentified Analyst:]

I’m the foreign stuff analyst from Bounded Security. My question is to the CEO, that regarding to the IPO [ph] you said, many of the investors would like to raise the same question, it’s about Indonesian moratorium and I would like to know what’s your comment on the [indiscernible].

[Xinrong Zhuo:]

Thank you for your questions and regarding to the Indonesian moratorium. As you know, that Indonesian moratorium met in 2016 and what I have learned is that the Chinese government has been continually communicating with the Indonesian government in this regard. And we have been cooperating with both sides and hope to soon implement the relevant agreements to resume fishing. In this regard, we believe that the Chinese government is definitely helping us to pushing this forward for us to fish here as soon as possible and I know that - I think that we’re expanding into new fishing, safe fishing territories and so we will not rely on the old ones or the existing ones at the Indonesian waters. So recently we announced our ships to [indiscernible] and we actually have more developments furthering this regard for expanding to new fishing territories, but right now we’re in the process of negotiating with the local government to getting permit. So hopefully I’ll disclose good news to everyone soon. Back to the moratorium and I’m with - to resume fishing and hope traction in 2017, personally I have confident. Well, I’m sure 2017 May, I could give everyone good news in this regards. Thank you.

[Operator:]

Thank you. Our next question is coming from the line of [indiscernible] Lee with China Asset Management. Please go ahead with your questions.

[Unidentified Analyst:]

My name is [indiscernible] Lee and I’m from China Asset Management. I have heard that - you have touched on your short-term strategy within the next few years and I would like the management to give me more details regarding to the vessels expansion, fleet expansion and the fishing territories. And how would you like to move into the retail market? Thank you.

[Xinrong Zhuo:]

Thanks for your questions and to talk about our short-term strategy, I would like to touch on two new assets. The first one will be continual fleet expansion. It has always been our longing to implement on programs set by our management and the Board of Directors. And we will extend our fleet through a variety of methods and which will include but not limits to on our aim in both domestic and overseas. The second aspect I would like to touch on is the industrial channel extension and that we will seek to open that and directly reaching to retail channels and to establish our own brands. Because in recent years we have found that the Chinese seafood market has been affected by the abuse of the - under that mix in fishing and the collusion in the China Sea and among other factors. Well, all of these resulted the increasing of the pricing and demand of our products, the deep ocean fishing products. So our current sales model is done for wholesale and oil prices that are only 20% compared to other retail price. So we would like to cut the middle parties and into direct sales, the retail sales and transform our model from do business to customers. This is very important for us in 2017 and we have been focused on promoting these two aspects of work and hopefully to make substantial progress and that will be like everyone approved and definitely we’ll make an announcement on a timely manner.

[Operator:]

Thank you. At this time I would turn the floor back to management for further remarks.

[Roy Yu:]

Thanks again to all of you for joining us today. We look forward to speaking with you again in May after we report our first quarter financial results. As always we welcome any visitors to our facilities in Fuzhou, China. Thank you.

[Operator:]

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