Pingtan Marine Enterprise Ltd.
Q3 2014 Earnings Call Transcript

Published: 16 Nov 2014

[Operator:]

Greetings and welcome to the Pingtan Marine's 2014 Third Quarter Conference Call. At this time, all participants are in a listen-only mode. A brief 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 your host Ms. Katherine Yao of the Equity Group. Please go ahead.

[Katherine Yao:]

Thank you, Operator and good morning everyone. Thank you for joining us. Copies of the press release announcing the 2014 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'd 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 result 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'd 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 we'll translate in to the 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. [Foreign Language]

[Xinrong Zhuo:]

[Foreign Language] Thank you. Thanks for joining our 2014 third quarter conference call. [Foreign Language] And we are pleased to continue to deliver strong operating results and have achieved triple-digit percentage growth for revenue and net income in the third quarter of 2014. [Foreign Language] Gross sales volumes in the third quarter of 2014 rose by 143% to 15,868,029 kilograms from 6,530,603 kilograms in the same period of 2013. [Foreign Language]. In September, We further expanded our fleet to 129 vessels through the addition of three new vessels with twice the catching capacity compared to our other trawlers. These vessels have been placed into sea for testing for 3-6 months to go through their initial run-in period, and are fully licensed to fishing at Indonesian waters. We are penetrating from the decrease in the upside for fishing licenses in 2012 since the Ministry of Agriculture restricted the issuance of new fishing licenses in our Arafura Sea in Indonesia during 2013. This allows our company to abundant capacity in the market where all the competitor [indiscernible] cannot access enter into the market. Our low cost operation each of these three vessels is capable of both harvesting about 2000 of fish annually. And we anticipate these new vessels to be in full operation as of the end of the second quarter of 2015. [Foreign Language]. We are also moving aggressively towards the joint venture incorporated with China Co-Op and we have already contributed partially applicable portion of the joint venture registered capital. We used our present vessel capital together with bank loan [ph] and that was also included to rely on these two capital resources to fund the projects future payments. [Foreign Language]. We are walking very closely with China Co-Op to uptake unnecessary permit for the fishing processing plant. We believe our long-term investments are product of the joint venture support and directing time to develop our revenue and to achieve the goal to sell our products to the end market. Again we will keep investing regularly at pace of our progress. [Foreign Language]. In September 24, 2013, we were pleased to announce that Pingtan has began paying as quarterly dividend of $0.01 per share and declared a cash dividend of USD $0.01 per share of common stock recorded date of October 06, 2013 and it will be payable cash on or about November 14, 2013 to shareholder which will be made next fee-based[ph]. [Foreign Language] Many of you have witnessed Pingtan's growth over the past year and we're pleased with our achievements and developments. Plus we want to expand between providing our shareholder ongoing cash return and using our capital to support the growth opportunity we have in the market. [Foreign Language] The quarterly dividend payment is supported by our strong balance sheet and we believe it reflects our confidence in the positive outlook for the company's business prospects in the coming months and years. [Foreign Language] Looking ahead, the demand for deep ocean seafood continues to increase in China. Pingtan has been benefited and remain relatively working on the increased production capacity and enhance our fleet. Our management team and the entire team at Pingtan remains dedicated in building our industry leading position and they're committed to deliver significant growth in return to investors and upcoming quarters, thank you. I'd now like to turn the call over to Mr. Roy Yu, Chief Financial Officer of Pingtan Marine Enterprise. Please go ahead Mr. Yu.

[Roy Yu:]

Thanks Katherine. Welcome everyone. Today, I will discuss Pingtan Marine's 2014 third quarter financial results. Before I get started, I would like to address few significant events during the third quarter and recent announcement. At September 3, 2014, we announced that the appointment BDO China at the company's independent registered public accountants for the year ended December 31, 2014. In September 2014, we announced that its Board of Directors have decided that we will begin paying a quarterly dividend of $0.01 per share and declared a cash dividend of $0.01 per common stock outstanding payable in cash on November 14, 2014 to shareholders of record on October 6, 2014. On November 4, 2014 after discussing with our previous independent registered public accountant firm UHY Vocation Hong Kong CPA Limited. The company's audit committee of the Board of Directors concluded that certain of the company's consolidated financial statements could no longer be relied upon. And the company needs to amend consolidated financial results to reflect ours. In November 6, 2014, we announced a restatement to its annual financial statements for year ended December 31, 2013 and 2012. And consequently, comparative consolidated interim financial statement for period ended March 31, 2014 and 2013 and September 2014 and 2013. Primarily to reflect 20 fishing vessels leased from a related party pursuant to an operating lease rights agreement at historical cost in property, plant and equipment, clarify certain disclosures, and record other miscellaneous adjustments such as the reclassification of certain balance sheets items and adjustments to depreciation and amortization expense, but the fact of that restatement result reducing in total assets by a $188 million and shareholders' equity by a $187 million at December 31, 2013. Of note, the restatement had a positive impact on Pingtan's consolidated statements of income for all effective period. For the year-ended December 31, 2013 net income from continuing operations increased by $1.9 million or $0.01 per basic and diluted share to $47.4 million or $0.60 per basic and diluted share. These repayments are more fully described in our Form 8-K we filed with the Securities and Exchange Commission on November 06 and I am happy to answer any questions during our Q&A section later. Now, I would like to discuss our 2014 third quarter results. Please note all results described here in this conference call are compared to the repayment of Pingtan Marine unaudited consolidated financial statements in the prior year period. We achieved top and bottom-line from our fishing business for the three months ended September 30, 2014. This was a result of increase in sales volume from the additional 66 new fishing vessels in September and December 2014, which operated at full capacity in the current period. For us the addition of the 20 new fishing vessels acquired in December 2013 have also begin operating during the first two quarters. In terms of breaking down our sales volumes, our top 6 species of fish sold included

[Operator:]

Thank you. At this time we will conduct a question and answer session. (Operator Instructions) Our first question comes from [indiscernible] with Aegis Capital. Please proceed with your question.

[Unidentified Analyst:]

First question is your press release mentioned that during the quarter there was an increase in fuel cost, so assuming the current price trend for oil, what's your expectation for your gross margin going forward?

[Roy Yu:]

I think first of all, I want to be clear here, when we talked about the cost increase in fuel cost is not we're talking about the price of the fuel increased. It's because the number of vessels increased compared to the third quarter last year. So we have more vessels during the third quarter this year. So as we previously disclosed for the market that, the third quarter we do have a seasonality because of the weather, so we need to -- there's about one month we cannot do the fishing under sea because of the bad weather. But we still need to keep these vessels moving some times. That's why the fuel cost increased. I believe going forward the outlook for the full year, we should be back our gross margin should come back to a normal level. Thank you.

[Unidentified Analyst:]

Second question is regarding the collaboration with China Co-Op is there any timeframe you can give us regarding when you're going to acquire all the permits and when the positive plans established [ph]s?

[Roy Yu:]

Relevant paper work has been filed to the government, so it's taking time and process for the government to get the final permit to us for setting up this process confirmed. Which we have previously negotiated with the government officials, so we don't see a problem to get the permit and also we followed up with our previously announcement that, they expect to have these process confirmed, be up and running by the end of 2015.

[Unidentified Analyst:]

My last question is the press release says the average unit selling price increased 8.5% in the third quarter compared to the third quarter in 2013, what's your expectation regarding selling price in 2015?

[Roy Yu:]

So first of all, currently the largest challenge to our management team is we cannot provide enough products to the market because the demand for natural seafood in China is so high given the reality which China facing the seriously food safety problem, it's vastly for the farming seafood so because the farmers feed too much drugs to their fish so that caused problem to the people who eat them and damage their -- seriously health damage by eating this kind of seafood. So there was a public report came out in the first quarter this year. So there is a huge overall impact to the seafood market. So that driven the price of natural seafood higher and higher. So I believe in 2015 the seafood price will keep continuous increase like the trend today. So that’s my point of view.

[Operator:]

(Operator Instructions). Our next question comes from Shin Lu with First Trust China. Please proceed with your question. Shin Lu your line is live.

[Shin Lu:]

My first question is about the joint venture with China [indiscernible]. What’s the [indiscernible] management team this company. And you said there is much coming from the backlog and it is coming from your own company. And what’s the total capital investments and how long it takes to [indiscernible] this product.

[Roy Yu:]

The total investment, we cannot put into this joint venture. This is going to be RMB 1 billion and that’s at least five years plan. So our goal with China Co-ops is to set up the largest seafood processing plant in Asia. Because China Co-ops they owned over 300,000 food retail stores in China so they are the largest. [Indiscernible] That’s taking three steps actually. So for the first step we going to put into RMB 300 million so in total to set up the plant and have a processing capacity about 50,000 and then we are going to increase that second step. Our final goal is to have the capacity of this processing plant over 200,000 [indiscernible] per annum.

[Shin Lu:]

Okay. So my second would be what’s your shareholder structure would be [indiscernible].

[Roy Yu:]

Okay. So there are three shareholders in this joint venture and China Co-Op is the largest. They hold 36% and we hold 35% and there is another shareholder hold 29%.

[Operator:]

There are no further questions in queue at this time I would like to turn the call back over to management for closing comments.

[Roy Yu:]

Thanks again to all of you for joining us. We look forward to speaking with you again in March 2015 after we report our 2014 fourth quarter and year-ended financial results. As always we welcome any visitors to our facilities in Fuzhou, China. Thank you.

[Operator:]

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. And have a great day.