Pingtan Marine Enterprise Ltd.
Q3 2015 Earnings Call Transcript

Published: 10 Nov 2015

[Operator:]

Greetings, welcome to the Pingtan Marine Enterprise 2015 third quarter financial results. [Operator Instructions] I would now like to turn the conference over to your host, Ms. Katherine Yao of the Equity Group. Thank you, Ms. Yao. You may now begin.

[Katherine Yao:]

Thank you, Roderick, and good morning, everyone. Thank you for joining us. Copies of the press release announcing the 2015 third quarter financial results are available on Pingtan Marine's website at www.ptmarine.com. You are also welcome to contact our office at 212-836-1600 and we'll be happy to send you a copy. In addition, this broadcast will be made available on 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. The company filed its quarterly report on Form 10-Q yesterday. I would now like to take a moment to outline the format of today's call. The company's Chairman and CEO, Mr. Xinrong Zhuo, will read our prepared opening statements in Mandarin, which I will then translate 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. With that, I will turn the call over to Pingtan Marine's Chairman and CEO, Mr. Xinrong Zhuo.

[Xinrong Zhuo:]

Thank you for joining our 2015 third quarter conference call. In compliance with guidelines required by the Indonesian Navy and to support its anti-illegal fishing measures, our fishing vessels operating in the Arafura Sea of Indonesia were forced to temporarily cease its operations since February. The moratorium enacted by the Indonesian government significantly affected a portion of our operating results. However, we feel that with our scale and leading position within industry, offers us a competitive opportunity over smaller enterprises that can not leverage these resources. In the long-term, we believe that the Indonesian government anti-illegal fishing measures will eventually benefit companies with competitive strength in [indiscernible]. In addition, we'll also continue to make more efforts to deliver high-quality deep ocean products to the end-markets throughout China. In the third quarter, through our continued efforts, we obtained a profit by leveraging the peak sales season to revitalize our existing inventories to offset some assets from the moratorium. As the growing demand for seafood products in China's markets, we can intend to devote additional time and resources to our current operation in the Indian Exclusive Economic Zone and the Western and Central Pacific Ocean of the International Waters to provide high-quality products to our customers in China during the fourth quarter. The type of challenges we faced in the first nine months of 2015 will have not impact our confidence in building China's top fishery company and on certain future steady reward all investors. Even though the moratorium affected our overall operating results that we still generated positive results. In return for shareholders continued support to Pingtan, on October 9 we announced quarterly dividend of record date of October 16, 2015, and will be paid in cash on about November 16. This marks the fourth consecutive quarterly dividend paid by the company. We believe it reflects our confidence in the positive outlook for the company's business prospects in the upcoming quarters. On behalf of our company, we'll look forward to meet our investors in person, and as always welcome each of you to visit our facilities in Fuzhou and take a tour. Thank you. I will now like to turn the call over to Mr. Roy Yu, Chief Financial Officer of Pingtan Marine Enterprise. Please go ahead, sir.

[Roy Yu:]

Good morning, and welcome everyone. Today, I will discuss Pingtan Marine's 2015 third quarter operational and financial results. Before I get started, I will provide more details on significant factors that impacted our operations during the third quarter and first nine months of 2015. As the Chairman noted, Pingtan's financial results were 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 the existing the fleets and to fight illegal fishing activities. We currently operate 135 fishing vessels and 117 of these vessels operate in the Arafura Sea of Indonesia. To cooperate and remain in compliance with the Indonesian government's fishing license check procedures, in January 2015, we have lowered our operation and from February 2015, Pingtan temporarily ceased operations in Indonesian waters. The Indonesian government had previously expected the license check of fishing vessels to be completed by April 30, 2015. As the date of this report, the license check was still in process. As a result, our sales for the three and nine months ended September 30, 2015, decreased significantly as compared to the three and nine months ended September 30, 2014. Now, I would like to move to the financials. In the 2015 third quarter, due to the moratorium in Indonesia, our sales volume decreased 94% to 1 million kilogram from 16 million kilogram in the third quarter of 2014. Pingtan report its revenues from our fishing business of $2.7 million for the three months ended September 30, 2015, compared to $54.4 million for the same period in 2014. The decrease was primarily due to significant decrease in sales volumes, as we temporarily ceased its operations in the Indonesian water from February 2015 due to the moratorium described above. For the third quarter ended September 30, 2015, the gross loss from our fishing business was $6.5 million compared to gross profit of $15.5 million in the prior-year period. The significant decrease was primarily due to the reduced scale of operation resulting from the moratorium, which is reflected in the allocation of fixed cost, mainly consisting of depreciation and labor cost to cost of revenue. The ordinary repairs and maintenance fees were performed to maintain vessels in operating condition in the period incurred and represent revenue expenditures. The overhead costs were allocated to last production volume due to the reduced operation during the three and nine months ended September 30, 2015. We expect that our gross margin will remain at this current quarterly level in the near future, and we can only improve our gross margin to extend that we can become more efficient by increasing our production. Our selling expenses include storage and shipping fees, customer service charge and insurance. Our sales activities are conducted through direct sales 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. Therefore, our selling expenses have been a small percentage of our revenue. For the third quarter ended September 30 2015, selling expenses were $0.3 million compared to $0.7 million in the prior-year period. During the more important period, we have endeavored to control corporate overhead and fixed corporate costs. For the three months ended September 30, 2015, general and administrative expenses were $0.7 million compared to $0.8 million in the prior-year period. For the three months ended September 30, 2015, Pingtan reported net income from the fishing business was $22.5 million or $0.26 per basic and diluted share compared to net income of $14.2 million or $0.18 per basic and diluted share in the prior-year period. The increase was primarily due to grant income from the Chinese government. Net income from the fishing business for the nine months ended September 30, 2014, was $29.4 million or $0.35 per basic and diluted shares compared to $52.4 million or $0.66 per basic and diluted share in the same period of 2014. Moving quickly to the balance sheet. At September 30, 2015, Pingtan's cash and cash equivalents were $21.1 million. Total assets were $266 million, total long-term debt was $29.6 million and shareholders equity was $180.2 million compared to cash and cash equivalent of $12.8 million, total assets of $249 million, total long-term debt of $38.6 million and shareholders equity of $149.3 million respectively, at December 31, 2014. To conclude, our entire company is focused on what we can control, that is remaining active in discussions surrounding the moratorium and properly utilizing our assets. We are actively cooperating with Indonesian government to help facilitate and alleviate the current situation and hope the Indonesian government would soon lift the moratorium. As the Chairman mentioned earlier, we will devote additional time and resources in our operations in Indian waters and the Western and Central Pacific ocean, where we are currently operating our vessels. We continue to expand our sales channels and building our platform to direct supply to end customers. We are focusing on further diversifying our assets by establishing new fishing territories and other opportunities. With that, operator, let's open it up for any questions. Thank you.

[Operator:]

[Operator Instructions] Thank you.

[Operator:]

At this time, I would like to turn the floor back to management for closing comments. End of Q&A

[Roy Yu:]

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

[Operator:]

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