Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Gulf Resources, Inc. (NASDAQ:GURE)

Q2 2014 Earnings Conference Call

August 11, 2014 08:00 AM ET

Executives

Helen Xu - Director, IR

Xiaobin Liu - CEO

Operator

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gulf Resources’ 2014 Second Quarter Earnings 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. You may begin your conference.

Helen Xu

Okay, 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’ second 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 to our listeners that in this call, management’s remarks will contain forward-looking statements which are subject to risks and uncertainties. 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 conditions 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 main production chemicals. All forward-looking statements are expressly qualified in their entirety by these cautionary statements and the risk factors detailed with 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 reflecting the Company’s management estimate as of today, June 30, 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 on the Company’s Web site. The call is also accessible through the webcast and the link is accessible through our Web site. Please look at our press release issued early 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 translate. Xiaobin?

Xiaobin Liu

[Foreign Language].

First of all, thank you for participating in Gulf Resources second quarter 2014 earnings conference call.

[Foreign Language].

We are pleased to report that net income has increased 37% for the first half year of 2014 compared with the same period of 2013. This was primarily due to the strong performance from our Chemical Products segment, which increased both a selling price and selling volume per ton. Gross profit margin also increased by approximately 5%, while our other two business segments, bromine and crude salt, experienced weaker results.

[Foreign Language].

Despite the continuing macro-economic tightening policy imposed by the PRC government beginning in the second half of 2011, and a decrease in raw mater prices of bromine and crude salt, the Company's net income increased slightly by 6% for the second quarter 2014 compared to the same period of 2013. We will continue to pursue a long-term growth strategy by expanding our business segments, exploring more brine water resources, obtaining bromine assets through acquisition, developing new projects, and continually looking for and doing attractive horizontal and vertical acquisition in the industry, while evaluating our cash flow from operating activities, which will help the Company achieve a sustainable long-term competitive advantage. In the meantime, the Company will continue to try to improve its internal controls, expand its sales markets, increase its production utilization rate and decrease management and administrative expenses.

[Foreign Language].

Helen Xu

Okay, thank you, Mr. Liu. I'm going to continue with presenting the Company’s results for the second quarter of 2014 on behalf of Company’s CEO Xiaobin Liu. For the second quarter 2014 financial results highlights, the Company’s net revenue was approximately $31.8 million for three-month period ended June 30, 2014, a decrease of approximately 3% as compared to the same period in 2013. This decrease was mainly due to the decrease in our bromine and crude salt segments. Revenue from the bromine products segment decreased from $17.5 million for the second quarter of 2013 to $16.2 million for the same period in 2014, a decrease of around 7%. Revenue from the crude salt segment decreased from approximately $3.6 million for the second quarter 2013 to around $2.9 million for the same period in 2014, a decrease of 20%. Revenue from the chemical products segment increased from $11.8 million for second quarter 2013 to approximately $12.6 million for the same period in 2014, an increase of approximately 7%.

Gross profit was around $9.2 million or 29% of net revenue for the second quarter ended June 30, 2014 as compared to the $9.6 million or 29% of net revenue for the same period in 2013. The total research and development costs incurred for the three months period ended June 30, 2014 and 2013 was around 32.5000 and 54.5000 respectively, a decrease of 40%.

Research and development cost for the three month period ended June 30, 2014 and 2013 represented the raw materials used by SYCI for the testing of manufacture routine. General and admin expenses were approximately $1.7 million for the second quarter 2014, a decrease of 30% as compared to $2.4 million for the same period in 2013. This decrease in G&A expense was primarily due to the decrease of non-cash expenses related to stock options granted to Company employees, and secondly, the unrealized exchange loss in relation to the translation difference of intercompany balances in U.S. dollar and RMB.

Other operating income was 116.9000 for the three-month period ended June 30, 2014, which represented sales of wastewater for some of our customers. Other operating income was around. Other operating income was around 287,000 for the three months period ended June 30, 2013. Income from operation was $7.5 million for the second quarter 2014, an increase of around 2% over income from operations in the second quarter in 2013. This increase was mainly due to the decrease in general and administrative expenses as described above and which offset it by a decrease in bromine and the salt segment revenue mainly due to the decrease in bromine and crude salt selling prices.

Other income net of around 66.7000 representing bank interest income, net of capital lease interest expenses for the three-months period ended June 30, 2014, an increase of 158% as compared to the same period in 2013, due to higher average bank balances held during this period and net income was $5.7 million for the second quarter 2014 an increase of 6% compared to the same quarter in 2013. This increase resulted mainly from a decrease in general and administrative expenses as we mentioned early which offset by decrease in bromine and the starch segment revenues resulted from decrease in bromine and crude salt selling prices.

Income taxes was $1.9 million for the second quarter of 2014, a decrease of 6% from $2 million for the first quarter of 2013. The Company’s effective tax was 25% and 28% for the three months period ended June 30, 2014 and 2013 respectively. Now we would like to provide some highlights on six months ended June 30, 2014. The net income was $10 million or around $0.26 and $0.25 per basic and diluted shares respectively. For the six months period ended June 30, 2014 this is an increase of about approximately 37% as compared to the same period in 2013 which was $10.5 million or $0.19 per basic and diluted shares respectively. The net revenue for six months period ended June 30, 2014 was $57 million, representing an increase of $2 million or 4% over the same period in 2013.

Gross profit was $60 million for the first half year of 2014 as compared to $40 million for the same period in 2013, which is around 25%, primarily attributable to the increase in the margin percent of chemical product segment. The income from operation was $30 million for the first half year of 2014 and an increase of 3% or around 32% over income from operations for the same period in 2013.

For the financial conditions as of June 30, 2014, the Company had cash of $129 million, corporate liabilities of $14.3 million and the stockholders equity of $302 million as of June 30, 2014. The Company had working capital of $168.8 million and generated $23.1 million in cash flow from operations, $used around 0.6 million for prepayment of land leases and repaid 0.3 million for our capital lease obligations for the six months period ended June 30, 2014. For any further inventor inquiries, investors may continue to reach our IR manager and CEO assistant at the email address disclosed at our Web site.

With that now we’d like to pass the call to any questions pertaining to the second quarter 2014 financial and operating performance. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Li Chen.

Unidentified Analyst

So I have two questions, so first of all Mr. Liu, thanks for the great quarter. So I just want to know do you realize how much cash per share your company currently has. So you mentioned you have $129 million in cash and that equates to approximately $3.3 per share. Is that correct?

Helen Xu

Yes. So this is your question. You want to make sure it's Mr. Liu or?

Unidentified Analyst

Yes, I just wanted to see if Mr. Liu can acknowledge that?

Xiaobin Liu

[Foreign Language].

Mr. Liu said that yes, management realized your question early and during last two quarters there are some investors also did ask the similar question. We have received some emails as well. But based on his understanding and thoughts that we think why the Company’s current share value is much lower than the price it’s supposed to be like you mentioned that there are a lot of cash, because we are not confident on the Company’s future growth but we think that if we continue doing very well operation, continually under Company’s for long-term growth and once like for a long-term growth, later investor will realize that the Company is on its right path and the share price will also have reflected in the future.

Unidentified Analyst

Yes, but I understand that, just part of the reason why the stock price is depressed is due to the lack of investor confidence. So in the short term, is there anything that Mr. Liu will be doing for the shareholder to boost the U.S. investor confidence?

Xiaobin Liu

[Foreign Language].

Okay. Mr. Liu stated that because Company, now its production is quite slow, especially the raw material prices from bromine and crude salt have a big impact on Company’s operation such as bromine and crude salt which price increase or decrease have a very big impact on Company’s operational results. That’s why we think we should try to do more on the downstream production line, try to perfect the Company’s current production line and increase Company’s profitability and anti-risk abilities while the raw bromine prices decrease. So, we think by doing this, which will give investors a new image of a Company.

Unidentified Analyst

Okay, if I can make one last comment. So I just to know someone will -- let’s say there is an inventor who walks into your office next week and offer you to buyout your company using your cash. So if someone can basically build the Company for free it’s your spot price continue to be at this level. Just want to make that statement clear?

Xiaobin Liu

[Foreign Language]

We review and we keep our eyes on this -- the Company’s share price and our feedback from the inventors had more communication discussion with our inventors and try to protect which you mentioned early and evaluating all the conditions in market.

Operator

The next question comes from Austin [indiscernible].

Unidentified Analyst

First congratulations for the excellent quarter performance. My first question is in few quarters ago Company announced 8 million stock purchase and I want to know what is the current standing of this stock purchase program, how much stock is there and how many cash remaining for this forward?

Helen Xu

Sorry Austin I missed your last question. What’s your last question? 8 million…

Unidentified Analyst

The stock purchase program announced a couple of quarter ago what is the standing…

Helen Xu

What’s the status of it currently?

Unidentified Analyst

Yes.

Helen Xu

Okay, I got it.

Xiaobin Liu

[Foreign Language]

The share repurchase program we announced back then was at very interesting time. That time Company’s stock was lower than $1. But after that the company’s share price increased at now current value and we think that we should have to do more work on Company’s daily operation like before we mentioned to Mr. Chen’s question that we still think we do more efforts on commence operation and makes perfect production chain which will provide new image to our inventors and increase the Company’s profitability and anti-risk abilities.

Unidentified Analyst

Okay. My second question is what is the Company’s plan to using the $129 million cash, what is the Company’s plan to using that cash for the Company expansion, if it’s a local plan to using our cash? The battle with using our cash is buyback is on stock so cost of the spot supply and to boost -- that is the best way to boost confidence of the investors. And you might add any comments on this?

Xiaobin Liu

[Foreign Language]

Okay, so the first comment from Liu was that we plan to do use this cash at hand for two major areas. The first one was like we mentioned early that Company was always trying to do [indiscernible] acquisitions in the industry. So we will always look for the targets and we want to -- by doing this that while the raw materials price at the low level but which will not have impact -- big impact on Company’s operation, our income will be higher than currently and which by doing this can increase Company’s anti-risk abilities which is better for Company’s long term growth strategy. I think this is also investors view as well. The second area Mr. Liu mentioned was that as we discussed for a long time already, the Company was doing pretty well this trend. By doing this we are evaluating always possible mineral and make sure resulted in the growth, try to find other raw materials besides halogen [ph] water, and increase the Company’s business segments, increase its profitability.

[Foreign Language]

Of course before we doing all this we will have fully discussion and communication with our investors and shareholders if they're feedback from the market that they think that this projects or the acquisitions we are going to do is not valuable for the Company, we may consider the comments.

[Foreign Language]

So, hi, who are listening this webcasting and conference call that just now because there -- Austin Liu and Mr. Xiaobin Liu was using Chinese to discuss about the possible dividends Company might issue to shareholders that Austin, so you suggest the Company to do this and Mr. Liu stated that we will always do this but due to the old cash of companywide in China Bank and due to the foreign currency restriction from government so we might be having some problems to issue dividends. But Mr. Liu, who said that who can make products as part to the Company on this method and who will contact me on my e-mail to provide his help to us and we will try to discuss the possible measure with local governments.

Operator

Your next question comes from Carl McGuire.

Unidentified Analyst

In 2011, 2012 we did some exploration in Daying County with promising results. We have update on that and is Daying County is still a consideration for future investment?

Xiaobin Liu

[Foreign Language].

Mr. Liu said that overly speaking China economy is not well, so with the tightened policy continually imposed since 2011 and raw material price is also low, like the bromine and crude salt prices also decreased. So, we are not quite positive for the next half year of 2014 but the Company also trying to avoid the risks involved across the board, raw material price decreasing due to overall economic condition, increased like we mentioned to before investors that, always trying to increase Company’s production portfolio, like add more productions back into the Company’s production portfolio and expand its production capabilities by doing acquisitions at downstream and all into three. By doing this to increase the Company's anti-risk ability and profitability even if the market condition is not good and raw material price might have big impact on the Company’s operation.

Unidentified Analyst

Follow-up question to that. So if I understand that correctly, what I heard was that the economics of Daying County today doesn’t make sense to move forward within the exploration but would you please ask if it still is option for future consideration should the economics change to the point where it does make sense?

Helen Xu

Carl, sorry I missed, do you mind just repeat you question again because the line is not clear.

Unidentified Analyst

Sure, okay. So, what I heard was that the economics of Daying County doesn’t add up or make sense at this point in time but my question is, is it still an option for future consideration should the economics change to the point that it does make sense?

Helen Xu

So you mean currently China economy is not good or good?

Unidentified Analyst

I am sorry I am not making myself clear. I’ll try one more time. Within county what I heard with economic, it doesn’t make sense economically to continue to explore Daying County but my question is if it's still an option for future consideration?

Helen Xu

So maybe China currently economy do have like impact on Company’s operations but you enter…

Unidentified Analyst

That’s question here, is Daying County still a future consideration should economics change?

Helen Xu

Okay. The economic and future change, what will happen to the economy, you mean this?

Unidentified Analyst

Well, all I really want to know is, is Daying County still an option, is it still on the table?

Helen Xu

I can't inform you yet.

Unidentified Analyst

Okay, never mind just. I understand what he was trying to tell me. I was just trying to find out if Daying County is still an option for Gulf Resources.

Helen Xu

Okay.

Unidentified Analyst

And a yes or no would be fine. Just yes or no, is it still an option?

Helen Xu

[Indiscernible] County is an option but only the Daying County…

Unidentified Analyst

Daying County was where they did the exploration for bromine.

Helen Xu

Oh, the [indiscernible] county. Yes, we are it now and we are still doing now as well as point in trying to find more materials like precise high income besides bromine to see to evaluate them -- materials under the belt to see besides bromine is there any other possible materials we can make it commercialized.

Unidentified Analyst

Okay, thank you.

Helen Xu

Okay, sorry about misunderstanding. Thank you.

Operator

There are no further questions at this time.

Helen Xu

Operator do you mind to ask again if there are any other questions, otherwise we can close the call.

Operator

(Operator Instructions) There are no further questions.

Helen Xu

[Foreign Language].

Operator, thank you. I think we can close the call now. Thank you.

Operator

Thank you. This concludes today’s conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Gulf Resources' (GURE) CEO Xiaobin Liu on Q2 2014 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts