Pingtan Marine Enterprise Ltd (PME) CEO Xinrong Zhuo on Q1 2019 Results - Earnings Call Transcript

May 11, 2019 10:51 PM ETPingtan Marine Enterprise Ltd. (PME)
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Pingtan Marine Enterprise Ltd (NASDAQ:PME) Q1 2019 Earnings Conference Call May 10, 2019 8:30 AM ET

Company Participants

Katherine Yao - The Equity Group

Xinrong Zhuo - Chairman & CEO

Yang Yu - CFO & Secretary

Conference Call Participants

Operator

Greetings, and welcome to Pingtan Marine Enterprise 2019 First Quarter Financial Results. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Katherine Yao of The Equity Group.

Katherine Yao

Thanks, and good morning, everyone. Thank you for joining us. Copies of the press release announcing 2019 first quarter financial results are available on Pingtan Marine's website at www.ptmarine.com. You're also welcome to contact our office at 212-836-9600, and we'll 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.

And now I'd like to take a moment to outline the format for today's call. In order to take care of all conference call participants, this call will be conducted in both English and Chinese. First of all, the company's Chairman and CEO, Mr. Xinrong Zhuo, will read a prepared opening statement 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.

For the question-and-answer session, please allow us a moment to translate questions. Then we will respond to everyone on the call in both English and Chinese.

With that, I will turn the call over to Pingtan Marine's Chairman and CEO, Mr. Xinrong Zhuo. Please go ahead, Mr. Zhuo.

Xinrong Zhuo

Thank you, Katherine. Good morning, everyone. Thanks for joining Pingtan Marine Enterprise's 2019 First Quarter Earnings Call. In the first quarter of 2019, we continued focusing on recovery of production capacity by deploying more fishing vessels to international waters for operation, which increased our harvest volume. In early March, the last batch of our first group of 27 modified and rebuilt fishing vessels have left the port of Fuzhou and sailed to the designated international waters for production. Thus, all these fishing vessels are in operation.

Also, during the first quarter 2019, the Ministry of Agriculture and Rural Affairs approved the modification and rebuilding of other 24 of our fishing vessels, which indicates our second group of vessels to be modified and rebuilt. After the completion of the modification and rebuilding projects, these vessels will be allowed to operate in the international waters of the Indian Ocean, North Pacific Ocean, Southeast Pacific and the Southwest Atlantic Oceans, including Argentina, which will further increase our production capacity and enrich our product mix.

In the first quarter of 2019, we have 31 fishing vessels operating in their respective designated waters. 16 vessels are under repairment and maintenance and 32 vessels are currently in the different stage of modification and rebuilding projects. The company will always make relentless efforts in expanding fishing grounds and increasing the number of operating vessels to demonstrate Pingtan's capability. As always, we will keep our investors updated of all developments, and we will welcome any constructive suggestions and introductions.

Now our CFO, Mr. Roy Yu, will discuss the first quarter of 2019 operation and financial results. On behalf of our company, I look forward to meeting all investors in person, and as always, welcome to our headquarters in Fuzhou and take a tour. Thank you. I would like to turn the call over to Mr. Roy Yu, Chief Financial Officer of Pingtan Marine Enterprise. Mr. Yu?

Yang Yu

Thank you, Katherine. Good morning, and welcome everyone. Regarding the factors affecting Pingtan's results of operation, please refer to our 2019 first quarter earnings press release and the 10-Q we filed yesterday. Today, I will discuss Pingtan Marine Enterprise 2019 first quarter operation and financial results.

For the first quarter of 2019, our sales volumes were 8.7 million kilograms, an increase by 123% from 3.9 million kilograms in the first quarter of 2018. Pingtan reported its revenue for the 3 months ended March 31, 2019, at $18.4 million compared to $10.9 million for the same period in 2018, an increase of 69.3%. The increase was mainly attributable to significant increase in both harvested volume and sales volume due to more fishing vessels operating in international waters.

For the first quarter of 2019, gross profit was $4.1 million compared to $5.6 million in the prior year period. The gross margin decreased to 22.1% for the 3 months ended March 31, 2019, from 51.5% in the same period in the prior year. As new fishing vessels are deployed in different waters of high seas, a different catch mix led to a drop of average unit sales price by 24%. And more importantly, 8 of our first group of 27 modified and rebuilt fishing vessels set their sail towards - to designated waters by the end of the first quarter of 2019, driving up the refueling cost and other related costs of revenue, while no revenue was generated because the vessels were not yet in operation in the reporting period, which primarily accounts for the decrease in gross margin.

For the first quarter of 2019, selling expenses were $0.7 million compared to $0.5 million in the prior year period. The increase was primarily due to the increase in insurance due to the different insured fishing vessels mix, the increase in storage fees and shipping and handling fees as a result of larger warehouse rented and an increased number of deliveries to warehouse, partially offset by the decrease in customs clearance charge and other selling expenses.

For the three months ended March 31, 2019, our general and administrative expenses were $4.8 million compared to $3.1 million in the prior year period. The increase was primarily due to impairment loss on the vessels for the three months ended March 31, 2019, as well as the increase in professional fees, rent and related administrative service charge and travel and entertainment expenses. The increase was partially offset by the decrease in depreciation related to nonoperating vessels and in compensation and related benefits. And no bad debt expense is recorded as compared to $0.17 million for the 3 months ended March 31, 2018.

For the three months ended March 31, 2019, the company dismantled one transportation vessel and deregistered 6 fishing vessels and applied to the MOA for building seven new vessels. Due to the modification and rebuilding projects of the seven vessels, the company recorded a nonrecurring noncash impairment loss of $2.23 million. Pingtan reported a net loss of $1.97 million for the first quarter of 2019 compared to net income of $0.98 million in the prior year period.

Net loss attributable to owners of the company for 3 months ended March 31, 2019, was $1.9 million or $0.02 per basic and diluted share compared to net income attributable to owners of the company of $0.9 million or $0.01 per basic and diluted share in the same period of 2018. On the balance sheet, as of March 31, 2019, Pingtan's cash and cash equivalents were $76.9 million, total assets were $333.4 million, total long-term debt was $92.6 million and shareholders' equity was $152.5 million compared to $2 million, $247 million, $22.3 million and $151.6 million, respectively, at December 31, 2018.

We continue to focus on territory and fleet expansion and increase fishing vessels to further increase production capacity and enrich product mix. We are actively planning and preparing for expansion of the business to see - for deep processing and reach directly to end customers, both online and off-line. Meanwhile, we will further explore e-commerce retail business to enhance the entire industry chain and develop new distribution channels to the China inland provinces.

Katherine Yao

With that, operator, let's open it up for any questions. For the question-and-answer session, please allow us a moment to translate the questions. And then we will respond to everyone on the call in both English and Chinese. Ella, please.

Operator

[Operator Instructions]. Okay. There are no questions in the queue at this time. I'd like to turn it back to management for closing remarks.

End of Q&A

Yang Yu

Thanks again to all of you for joining us today. We look forward to speaking with you again in August after we report our second quarter financial results. As always, we welcome any visitors to our office in Fuzhou, China. Thank you.

Operator

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

Question-and-Answer Session

Q -

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