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Edited Transcript of KGJI earnings conference call or presentation 11-May-18 12:30pm GMT

Thomson Reuters StreetEvents

Q1 2018 Kingold Jewelry Inc Earnings Call

WUHAN May 18, 2018 (Thomson StreetEvents) -- Edited Transcript of Kingold Jewelry Inc earnings conference call or presentation Friday, May 11, 2018 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bin Liu

Kingold Jewelry, Inc. - CFO, Principal Accounting Officer & Secretary

* Katherine Yao

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Presentation

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Operator [1]

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Greetings, and welcome to Kingold Jewelry 2018 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.

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Katherine Yao, [2]

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Thank you, Sherry, and good morning, everyone. Thank you for joining us. A copy of the press release announcing 2018 first quarter financial results is available on Kingold Jewelry's website at www.kingoldjewelry.com. As part of this conference call, the company has a slide presentation available in PDF format on company's website. It is an accompaniment that you are welcome to contact our office at (212) 836-9600, and we'll be happy to send you a copy.

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 Kingold Jewelry's business and prospects and results of operation. Such risks are fully detailed in Kingold Jewelry's filings with the Securities and Exchange Commission.

Regarding the disclaimer language, I would like -- also like to refer you to Slide #2 of the webcast presentation for further information.

I would now like to take a moment to outline the format for today's call. Management presenting on the call today are Mr. Bin Liu, Kingold Jewelry's CFO; and Mr. [Xiao Hu], Kingold Jewelry's Treasurer.

Now I would like to take a moment to outline the format for today's call. First, I will read an opening statement prepared by the company's Chairman and CEO, Mr. Zhihong Jia. And I will then turn the conference call over to Mr. Bin Liu, Kingold Jewelry's CFO, who will continue with the presentation. When the company finish the presentation, we will open the floor for questions.

With that, I will start to read the opening statement from Kingold Jewelry's Chairman and CEO, Mr. Zhihong Jia.

Thank you for joining our 2018 first quarter conference call. We're pleased to deliver strong operating results during the first quarter of 2018, which was a result of Kingold's continuous devotion in production expansion and achieved good performance from our gold investment after few quarters of our management's efforts. Our production capacity expanded based on the support of a slight amount of -- significant amount of gold from our prior investment at favorable terms.

According to the World Gold Council, China's demand for gold jewelry went up 7% for the first quarter of 2018, which was driven by the Chinese New Year and the Valentine's Day sales week. And the 18-karat K gold and 3D dimensional hard gold jewelry continued to gain market share.

3D hard gold is a new jewelry processing technique to create different 3D vivid and fashionable jewelry design while it maintains the high purity of gold. The company has gain ground in 3D hard gold product segment during the first quarter of 2018, as we benefited from our R&D efforts and management's attention to market trend.

Since 2017, our management has formed a special design team to focus on R&D of 3D hard 24-karat gold jewelry production, and we started to test water and launched a series of 3D hard gold products, and we were well received by our customers.

Looking ahead, we continue to focus on strengthening our design capability and expanding our production capacity, while deepen and further explore sales channels while to tight risk control of our investment gold and continue efforts in improving inventory management.

Based on our existing resource and capacity, along with strong demand for 24-karat gold products in China, we reiterate our expectations that gold process will be between 100 metric tons and 110 metric tons during year 2018.

On behalf of Kingold, I welcome all of you to visit our facilities in Wuhan, China. Thank you.

With that, now I would like to turn the call over to Mr. Bin Liu, Kingold Jewelry's Chief Financial Officer. Please go ahead, Mr. Liu.

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Bin Liu, Kingold Jewelry, Inc. - CFO, Principal Accounting Officer & Secretary [3]

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Thank you, Katherine, and welcome, everyone. Today, I will discuss Kingold's 2018 first quarter operation and financial results.

Kingold's sales are primarily composed of the sales of branded products and customized products. Kingold sells its products to customers at a price that reflects the market price of base material, plus a markup of design and processing fees.

In branded production, we purchase gold directly from Shanghai Gold Exchange once a customer has placed an order. And we recognize revenue on sales of branded products when the goods are delivered. Thus, the cost of gold is recorded as part of our revenue.

In customized production, our customers supply us their raw materials, and we create products per the customer's instructions, and the cost of gold is not recorded as part of our revenue.

During the first quarter of 2018, we processed approximately 23.3 metric tons of 24-karat gold products, an increase of 45.6% compared to 16 metric tons for the same period of last year. Among the 23.3 metric tons we processed during the first quarter of 2018 -- of which branded production accounted for 13 metric tons or 55.8% of the total volume and customized production accounted for 10.3 metric tons or 44.2% of the total volume.

In the 3 months ended March 31, 2018, the company reported net sales of USD 539.5 million, an increase of 85% from USD 292.2 million (sic) [USD 292.3 million] in the same period of 2017. The increase in net sales was primarily due to the higher sales volume for our branded production sales and our customized production sales. In addition, the average selling price for our branded production increased from RMB 245.7 per gram for the 3 months ended March 31, 2017, to RMB 258.3 per gram for the 3 months ended March 31, 2018.

For the first quarter ended March 31, 2018, gross profit was USD 64.2 million, an increase of 277% from $17.1 million in the prior year. Gross margin was 12% compared to 6% for the same period in 2017. The primary reasons for the increase in gross margin was due to the increased average selling price of branded production and decreasing unit cost of branded production sales. The average selling price of our branded production was RMB 285.3 per gram for the 3 months ended March 31, 2018, increased by RMB 12.6 or 5% from RMB 245.7 per gram for the same period in 2017.

While the unit cost of branded production sales was RMB 232.1 per gram for the 3 months ended March 31, 2018, decreased by RMB 2.8 or 1% from RMB 234.9 per gram for the same period in 2017. The decrease of unit cost of branded production was mainly due to the fact that the investment in gold released to the inventory for production during the 3 months ended March 31, 2018, was purchased at a low price in the past periods.

For the first quarter ended March 31, 2018, Kingold reported net income of USD 13.2 million or $0.20 per diluted share, increased by USD 34.5 million or 162% from net loss of $21.3 million or a loss of $0.32 per diluted share in the prior year period.

Moving to the balance sheet. At March 31, 2018, Kingold's cash and cash equivalents were $1 million, inventories, which is gold in our case, was $306.5 million, stockholder's equity was $398.7 million compared to cash and cash equivalent of $5 million, inventories of $135 million and stockholder's equity of $390.2 million at December 31, 2017.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) There are no questions at this time. I would like to turn the conference back over to management for closing remarks.

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Bin Liu, Kingold Jewelry, Inc. - CFO, Principal Accounting Officer & Secretary [2]

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Thanks, again, for -- to all of you for joining us. And we look forward to speaking with you again in August after our second quarter financial results. Thank you.

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Operator [3]

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