GULF RESOURCES' (GURE) CEO Xiaobin Liu on Q1 2014 Results - Earnings Call Transcript

May.12.14 | About: GULF RESOURCES (GURE)

Call Start: 08:00

Call End: 08:24

GULF RESOURCES INC (NASDAQ:GURE)

Q1 2014 Earnings Conference Call

May 12, 2014 08:00 AM ET

Executives

Helen Xu - IR Director and CEO Assistant

Xiaobin Liu - CEO

Analysts

Operator

Good morning. My name is Kyla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gulf Resources’ 2014 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. I will now turn the call over to Helen Xu.

Helen Xu

Hi, thank you, operator. Good morning, ladies and gentlemen, and good evening to those of you who are joining us from China. And we would like to welcome all of you to Gulf Resources’ first quarter 2014 earnings conference call. My name is Helen, IR Director and Assistant of Company's CEO. Our CEO and CFO of the Company, Mr. Xiaobin Liu; and Mr. Min Li, will also join this call today.

I will be offering translation for the management’s comments for the Company’s operating results. I’d like to remind you that in this call, management’s remarks will contain forward-looking statements which are subject to risks and uncertainties. The management may make additional forward-looking statements. Therefore the Company claims protection of Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those discussed today depending upon number of risk factors, including but not limited to, the general economic business condition in China, future product development and production capabilities, shipments to end customers, market acceptance of new and existing products, additional competition from existing and new competitors for the bromine and other oil fields, agriculture and the [indiscernible] production chemicals and changes of technology, the ability to make future bromine asset forecast and various other factors beyond the company’s control.

All forward-looking statements are expressly qualified in their entirety by the cautionary statements and the risk factors detailed through the Company’s reports filed with SEC. Accordingly, our Company believes that expectations reflected in these forward-looking statements are reasonable and there can be no assurance of such were proven to be correct.

In addition, any reference to the Company’s future performance represents the Company’s management estimate as of today, the 12th of May, 2014. Gulf Resources assumes no obligation to update these projections in the future as market conditions may change. For those of you unable to listen to the entire call at this time, a replay will be available for 14 days at the Company’s website. The call is also accessible through the webcast and the link is accessible through our Company website. Please look at our press release issued earlier for details.

It’s now my pleasure to turn this call to Mr. Liu, the company’s CEO, who is going to provide some initial remarks and then I will do the translating for him. Xiaobin?

Xiaobin Liu

First of all, thank you all for participating in Gulf Resources first quarter 2014 earnings conference call. I am pleased to report that revenue from chemical segments products had impressive performance increased by 36.9% even with the average performance from bromine and the crude salt segment in the first quarter of 2014 as compared with the same period of 2013. The company’s net income from operations still increased by 115% and the net income increased by 128% as compared with the same quarter of 2013.

Although we expect bromine prices to stay at current relatively low level in fiscal year 2014 due to the continued slowdown of the economy in China. We believe the strategy to take this great opportunity to expand the business segments, by exploring more brine water resources and obtaining bromine assets through acquisitions, the development of new projects and continually looking and doing attractive horizontal and vertical acquisition targets would enable the Company to achieve long-term growth in the future while considering the sufficient cash flow from our operating activities. In the meantime, the Company will also try to improve its internal control, expand sales markets, increase its production utilization rate and decrease management and the administration expenses.

Unidentified Company Representative

Thank you, Mr. Liu. I am going to continue with presenting the company’s results for the first quarter of 2014 on behalf of the company’s CEO.

The company’s net revenue was approximately 26.6 million for three months period ended March 31, 2014; an increase of approximately 14% as compared to the same period in 2013. This increase were primarily attributable to the increase of our chemical segments products which increased approximately 36.9% as we mentioned earlier.

The gross profit was approximately 6.9 million or 27% of net revenue for the three-months period ended March 31, 2014 as compared to approximately 4.6 million, or 20%, of net revenue for the same period in 2013. The increase in gross profit percent was primarily attributable to the increase in the margin percent in all of our three segments.

The total research and development costs incurred for the three-month ended March 31, 2013 and 2014 were 31,000 and 18,000 respectively, an increase of 74%. Research and development costs for the three-months period ended March 31, 2014 and 2013 representing raw materials used by Company’s vision for testing of the manufacturing routine.

General and administrative expenses were 1.3 million for the three-months period ended March 31, 2014; an increase of approximately 33% as compared to $2 million for the same period in 2013. The decrease was primarily due to firstly, the legal cost and expenses incurred in connection with the class action lawsuit as described in our 2013 Form 10-K, which was around 93,000 for the three-months period ended March 31, 2013 and $0 for the same period in this year since the lawsuit was already settled in early of 2013; and the second thing was because of the unrealized exchange gain in relation to the translation difference of inter-company balances in US dollar and renminbi. The third reason was because of depreciation of approximately $171,000 for January and February 2013 related to Factory No. 11 acquired in November 2012 which is recorded in general and administrative expenses instead of cost of goods sold because the (factory) [ph] commenced operations normally in March 2013.

Other operating income, which represented the sales of wastewater to some of our customers, which was approximately $118,000 for the three-months period ended March 31, 2014, representing an increase of approximately 23% for the same period in 2013. Wastewater is generated from the production of bromine and eventually becomes crude salt when it is evaporated.

Income from operation was approximately 5.6 million for the three-months period ended March 31, 2014; an increase of approximately 115%, over income from the same period in last year. This increase resulted primarily from the increases in the demand of our chemical product segment products.

Other income, net of 54,000 represented bank interest income, net of capital lease interest expense for the three-months period ended March 31, 2014, which represented an increase of approximately 117% as compared to the same quarter 2013, mainly due to higher average bank balance during the three months period ended March 31, 2014 compared to the same period ended March 31, 2013.

The net income was approximately 4.3 million for the three-months period in this quarter, an increase of approximately 128% compared to the same period in 2013. This increase was primarily attributable to the overall increase in demand of all our chemical products.

Income taxes was 1.4 million for this quarter, first quarter of 2014, an increase of 84% from $0.7 million in the first quarter of 2013.

Now I am going to give a summary on the financial condition. As of March 31, 2014, Gulf Resources had cash of $119.3 million, total liabilities of $13.2 million, and stockholders' equity of $296.4 million. Ended March 31, 2014, the Company had a working capital of $156.4 million. As of March 31, 2014, we generated $12.8 million in cash flow from operations and used approximately $0.3 million cash for the prepayment of land leases and $0.04 million to acquire property, plant and equipment in the first quarter of 2014.

For further investor inquiries, investors may continue to reach our IR manager and the CEO Assistant and the email address disclosed at our (apps) [ph] website.

With that I would like to open up the call to any question pertaining to the first quarter 2014 financial and operating performance. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) The first question is from James (Halt) [ph].

Unidentified Analyst

Yes, good afternoon, good morning or whatever time. The company stock sells at a price well below both asset and cash value. Purchases of the company stock is very attractive use of company funds. Are you planning on buying back company stock and if not, why not?

Xiaobin Liu

Okay. Hi, James, this is the comments from Mr. Liu that he said that we heard some concern from some investors as we have hinted, they could email us or contact us regarding the Company’s share prices decrease. But the Company management are considering that, while we're considering the economic condition in China and for the company’s long-term growth acquisition, we still didn’t make any decision yet to do acquisition or use this money to purchase share.

Unidentified Analyst

The second question or follow-up question, the market does not recognize the value of the Gulf and perhaps this is primarily due to a lack of confidence in the financial space upon experience with other companies that came to market under similar circumstances. What is Gulf planning to do to increase investor confidence in the company?

Xiaobin Liu

Okay. Company thinks that company's growth is a long time plan which is not a temporarily value, considering the Chinese company’s performance in the market which might not be real and we think currently approve everything and the long term reward to shareholders is our best interest.

So the management now is considering how to best use the cash in hand and the product's maximum value to our shareholders in long term run.

So we think the company's long term growth and we bring the confidence in shareholders and maximize shareholders' value in long term as well.

Unidentified Analyst

What are you doing in the near term to increase investor confidence?

Xiaobin Liu

Okay. Mr. Liu said in quarter three increase the shareholder's confidence in company when we first increased the communication with shareholders in some road show and that may involve an IR first to a special communication with shareholders as well increase the company's transparency to our shareholders.

Unidentified Company Representative

Hi, operator.

Operator

Yes, ma’am.

Unidentified Company Representative

You may ask any other questions?

Operator

I am not showing any further questions in queue.

Unidentified Company Representative

Okay.

Operator

Are there any closing remarks?

Unidentified Company Representative

So, I think if there are no other questions. We think we can close the call.

Operator

And that is correct, there are no further questions.

Xiaobin Liu

Okay, operator. Thank you very much. If there are no other questions I think we can close the call. Thank you very much.

Operator

Thank you. This concludes the call you may now disconnect.

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Gulf Resources (GURE): Q1 EPS of $0.11 Revenue of $25.6M