Pingtan Marine's (PME) CEO Xinrong Zhuo on Q2 2016 Results - Earnings Call Transcript

| About: Pingtan Marine (PME)

Pingtan Marine Enterprise Ltd. (NASDAQ:PME)

Q2 2016 Earnings Conference Call

August 9, 2016 08:30 ET

Executives

Katherine Yao – Equity Group, Investor Relations

Xinrong Zhuo – Chairman & Chief Executive Officer

Roy Yu – Chief Financial Officer

Analysts

Operator

Greetings, and welcome to the Pingtan Marine Enterprise 2016 Second Quarter Financial Results Conference Call. 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 your host, Ms. Katherine Yao, Senior Associate of the Equity Group. Thank you. You may begin.

Katherine Yao

Thank you, Erikson, and good morning, everyone. Thank you for joining us. Copies of the press release announcing the 2016 second 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 I 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. The company filed its Quarterly Report on Form 10-Q yesterday.

I would now like to take a moment to outline the format for today's call. 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.

With that I will now like to turn the read the opening statements from Pingtan Marine's Chairman and CEO, Mr. Xinrong Zhuo.

Xinrong Zhuo

[Foreign Language]

Good morning everyone and thanks for joining our 2016 second quarter conference call.

[Foreign Language]

In the first half of 2016 our operating results were still significantly affected by the moratorium as even though the Indonesian Government has concluded its suspension in November 2015, it had not yet implemented new fishing policies or resumed fishing in Indonesian waters as of today.

[Foreign Language]

We continue to cooperate with the Indonesia Government and we are confident that fully licensed fishing companies like Pingtan are allowed to resume fishing in Indonesian waters and the benefits from the much regulated fishing environment.

[Foreign Language]

In light of these challenges and pressure since the beginning of 2016, our sales team started to purchase a series of stable third-party suppliers to resell fish products and satisfy our growing customer demand.

[Foreign Language]

These resale activities of purchased fish products were well received by our customers and sales team has secured earnings and positive relationships with our top customers.

[Foreign Language]

In the previous conference call I have stated many times that our management team was committed to diversify our product mix and expansion into new fishing territories. Lastly, we were pleased to announce that 30 of our fishing vessels have obtained finishing licenses from the Ministry of Agriculture and Fisheries of the Democratic Republic of Timor-Leste, and are expected to operate in the sea area of the Democratic Republic of Timor-Leste starting in the upcoming quarter.

[Foreign Language]

Meanwhile, we are in process of negotiating with other water territories to expand into new fishing regions. As always, we welcome any suggestions and introductions.

[Foreign Language]

Despite the challenges we faced in the first half of 2016, we’re confident on [indiscernible] to work with our investors. Until like last year, Pingtan announced quarterly dividend of record date of July 31, 2016, and the transfer in cash on or about August 15. This is our seventh consecutive dividend to shareholders this reflects our confidence on building China's top fishery company and a positive outlook for Pingtan's development in upcoming months and years.

[Foreign Language]

On behalf of our company, I look forward to meet many of you in person and as always, welcome each of you to visit our facilities in Fuzhou and take a tour. Thank you.

Katherine Yao

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, Katherine. Good morning and welcome everyone. Today, I will discuss Pingtan Marine's 2016 second quarter operational and financial results. As we previously disclosed and Chairman Zhuo 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 existing fleets and to fight illegal fishing activities.

In November 2015 the Indonesian Government announced that the moratorium had concluded. The company's expectation is that the Indonesian Government will implement new fishing policies and resume this 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.

To cooperate and remain in compliance with the Indonesian Government's fishing license check procedures, in January 2015 we have reduced our operations, and from February 2015 Pingtan ceased operations in Indonesian waters. As a result, our sales for the three and six months ended June 30, 2016 decreased significantly as compared to the three and six months ended June 30, 2015. However, since the beginning of year 2016, we started to purchase fish from third-party to satisfy our customer demands.

The resale generated a positive gross margin on such sales. The positive gross margin in these reselling activities partially offset the decrease in the Company's overall gross margin for the three and six months ended June 30, 2016.

Now I'd like to move to financials results. For the second quarter of 2016, due to challenging environment in Indonesia, our sales volumes decreased by 85% to 0.7 million kilograms from 4.6 million kilograms in the second quarter of 2015.

For the second quarter ended June 30, 2016 Pingtan report its revenue of $2.1 million compared to $15.3 million for the same period in 2015. The decrease was primarily due to decrease in sales volumes. As we mentioned earlier, we see our operations in Indonesia waters since February 2015 due to the moratorium described above.

For the second quarter ended June 30, 2016, our gross loss was $3 million compared to gross profit of $1.2 million in the prior year period. The gross margin was 145% minus compared to 7.6% in the prior year period. The significant decrease was primarily due to the reduced scale of operations resulting in lower revenue which reflected in the allocation of fixed costs, mainly consisting of depreciation to cost of revenue, partially offset by the positive gross margin from our fish resale activities.

Our selling expenses included storage fees, insurance, shipping and handling fees, customer service charge, and advertising expenses. Our sales activity was conducted through direct sales by our internal staff because of the strong demand for our products and services; we do not have aggressively market and distribute our products. Therefore, our selling expenses have been a small percentage of our revenue.

For the second quarter ended June 30, 2016 selling expenses were $0.07 million compared to $0.3 million in the prior year period. Our general and administrative expenses for the second quarter of 2016 were $0.9 million compared to $0.4 million in the prior year period. For the three months ended June 30, 2016 Pingtan reported its net loss was $4.5 million or $0.05 per basic and diluted share compared to net loss of $1.6 million or $0.02 per basic and diluted share in the prior year period.

For the six months ended June 30, 2016, Pingtan revenues were $6.2 million compared to $44 million in the first half of 2015. Net loss for the first half 2016 was $10 million or $0.12 per basic and diluted share compared to net income of $6.8 million or $0.09 per basic and diluted share in the first half of 2015.

On the balance sheet as of June 30, 2016 Pingtan's cash and cash equivalents were $2.6 million. Total assets were $230 million. Total long-term debt was $32 million, and shareholders' equity was $152 million compared to $11 million, $232 million, $23 million and $167 million respectively at December 31, 2015.

To conclude, we are obligated to cooperating with the Indonesian Government in hopes of accelerating implementation of new fishing policies to licensed fishing companies like Pingtan. We are actively seeking into new fishing territories to increase our production and to extend our product mix. Meanwhile, we are cultured facing our resale trend to maintain existing customers deepening our sales channels in inland provinces penetrating into new sales regions.

With that, operator, let's open it up for any questions. Thank you.

Question-and-Answer Session

Operator

Roy Yu

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

Operator

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

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