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Edited Transcript of PME earnings conference call or presentation 12-Nov-19 1:30pm GMT

Q3 2019 Pingtan Marine Enterprise Ltd Earnings Call

FUZHOU Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Pingtan Marine Enterprise Ltd earnings conference call or presentation Tuesday, November 12, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Xinrong Zhuo

Pingtan Marine Enterprise Ltd. - Chairman & CEO

* Yang Yu

Pingtan Marine Enterprise Ltd. - CFO & Secretary

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Presentation

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Operator [1]

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Greetings, and welcome to the Pingtan Marine Enterprises Third Quarter 2019 Earnings Conference Call. (Operator Instructions) And as a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, [Jay Zhou]. Thank you. You may begin.

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Unidentified Company Representative, [2]

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Okay. Thank you, Jesse, and good morning, everyone. Thank you for joining us. (foreign language)

Copies of the press release announcing the 2019 third quarter and 9 months financial results are available on Pingtan Marine's website at www.ptmarine.com. (foreign language)

You are also welcome to contact us by e-mail to PTmarine@pure-rock.com, and we would be happy to send you a copy. In addition, this broadcast will be made available at Pingtan Marine's website. (foreign language)

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. (foreign language)

Investors are cautioned that such forward-looking statements involve risks and uncertainties that may affect Pingtan Marine's business and the prospects and the results of operations. Such risks are fully detailed in Pingtan Marine's filings with the Securities and Exchange Commission. (foreign language)

I now 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 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. (foreign language)

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. (foreign language)

With that, I turn the call over to Pingtan Marine's Chairman and CEO, Mr. Xinrong Zhuo. Please welcome Mr. Zhuo. (foreign language)

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Xinrong Zhuo, Pingtan Marine Enterprise Ltd. - Chairman & CEO [3]

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[Interpreted] Ladies and gentlemen, good morning. Thank you all for joining Pingtan Marine's 2019 third quarter and 9 months earnings call.

Since the beginning of 2018, the company started deploying rebuilt new vessels into operation in several groups, and we have experienced a steady growth of sales volume and saw an increase in sales volume for the third quarter of 2019 as compared to the same period of 2018.

However, product prices are subject to fluctuations due to market situation. During the quarter, the company's highest sales revenue and volume by single fish species were from one species with the lowest average price, and this resulted in a decrease in our revenue compared to the same period as of 2018. Besides, it was monsoon season this quarter, which made it difficult to transport catches back, and our fish landings for the quarter decreased compared to the previous quarter this year, another factor impacting our revenue. We believe that production capacity improvement plays a significant role in boosting revenue growth.

As we disclosed in our previous earnings release, the company has 31 vessels in different phases of modification and rebuilding. As of today, all of these vessels are completed, 25 of which have departed from port for sea and most of them have reached the designated fishing grounds; the remaining 6 vessels are expected to set sail to the international waters of the Indian ocean in the near future after fulfillment of departure preparation.

The company has been committed to improving catching capacity and expanding species of catches by actively exploring for other available fishing areas in international waters. We also made efforts in exploring other business models as well to enhance our business and strategy. This may include entering the international trade markets through strategic partnerships.

As always, Pingtan Marine will keep investors apprised of all aspects of development and progress, and we welcome constructive suggestions and effective recommendations.

As we enter the fourth quarter, the management continues to observe the market changes so that we may quickly adjust our sales strategy and focus on traditional offline based distribution business, while expanding the online seafood retail business in preparation for the coming peak season during the spring festival, with the Green Festival of the next year comes on January 25, 2020, an earlier date compared to previous years.

With that, I would like to turn the call over to our CFO to report 2019 3rd quarter and 9 months financial results. On behalf of our company, I look forward to meeting our investors in person and, as always, welcome to our headquarters in Fuzhou and take a tour of our facilities. Thank you.

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Unidentified Company Representative, [4]

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I now like to turn the call over to Mr. Roy Yu, Chief Financial Officer of Pingtan Marine Enterprise. (foreign language)

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Yang Yu, Pingtan Marine Enterprise Ltd. - CFO & Secretary [5]

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Thank you, Jay. Good morning, and welcome, everyone. Regarding the factors affecting Pingtan's results of operations, please refer to our 2019 third quarter earnings press release and the 10-Q we filed last Friday. Today, I will discuss Pingtan Marine's 2019 third quarter and 9 months operation and financial results. (foreign language)

Pingtan reports its revenue for 3 months ended September 30, 2019, at $11.2 million, decreased by 23.9% from $14.7 million for the same period in 2018. The decrease was mainly attributable to changes in different sales mix. Sales volumes in the 3 months ended September 30, 2019, increased by 49% to 8.7 million kilograms from 5.8 million kilograms in the 3 months ended September 30, 2018. The increase was due to more vessels in operation. Meanwhile, it was monsoon season for this quarter, which formed a barrier for the company to transport the catches back, and our fishing landings for this quarter presented a quarter-on-quarter decrease. This is another factor impacting our revenue. Average unit sales price decreased 48.8% in the 3 months ended September 30, 2019, as compared to the 3 months ended September 30, 2018. The decrease was mainly attributable to the fish species with highest sales volumes being sold at a lower selling price, which pulled down the average unit sale price of the company's catches. (foreign language)

For the 9 months ended September 30, 2019, the company's revenue increased to $55.1 million from $39.2 million for the 9 months of 2018. The sales volume increased 106.7% to 32.9 million kilograms from 15.9 million kilograms in the 9 months ended September 30, 2018. Average unit sale price decreased 31.7% in the 9 months ended September 30, 2019, as compared to the 9 months ended September 30, 2018. (foreign language)

For the third quarter of 2019, gross profit was $3.6 million compared to gross profit of $9.4 million in the prior year period, representing a change of $5.8 million or 61.8%. (foreign language)

Gross profit for the 9 months ended September 30, 2019, was $16.9 million, representing a change of $5 million or 22.8% as compared to gross profit of $21.9 million in the same period of 2018. The decrease was due to the decrease in the average unit sale price while our unit production cost of fish remained at a consistent level. (foreign language)

The gross margin was 32.1% for the 3 months ended September 30, 2019, compared to 63.9% in the same period prior year. (foreign language)

For the 9 months ended September 30, 2019, gross margin was 30.7% compared to 56% for the 9 months ended September 30, 2018. (foreign language)

The decrease in gross margin for the 3 months and 9 months ended September 30, 2019, as compared to the 3 months and 9 months ended September 30, 2018, was primarily attributable to a drop of average unit sale price by 48.8% and 31.7%, respectively, as a result of new fishing vessels being deployed in different water of high seas and harvesting a different catch mix. (foreign language)

For the third quarter of 2019, selling expenses was $0.65 million compared to $0.32 million in the prior year period. The increase was primarily due to the increase in insurance, shipping and handling fees and advertising as a result of an increase in number of vessels being insured and the number of deliveries from ports to warehouse in China. (foreign language)

For the 9 months ended September 30, 2019, selling expenses was $1.9 million compared to $1.2 million in the same period of 2018. The increase was due to the same reasons described above. (foreign language)

For the 3 months ended September 30, 2019, our general and administrative expenses was $1.6 million compared to $2.2 million in the prior year period, a decrease of $0.6 million or 25%. The decrease was mainly attributable to a decrease in depreciation of nonoperating vessels, a depreciation in rent and related administrative service charge and a decrease in other general and administrative expense by a large percentage, partially offset by the increase in compensation and related benefits, professional fees and impairment loss. (foreign language)

For the 9 months ended September 30, 2019, general and administrative expenses was $8.5 million compared to $8.3 million in the same period of 2018, an increase of $0.2 million or 3.2%. (foreign language)

Pingtan reported a net income attributable to owners of the company of $4 million for the third quarter of 2019, or $0.05 per basic and diluted share compared to net income attributable to owners of the company of $12.6 million or $0.16 per basic and diluted share in the prior year period. (foreign language)

Net income attributable to owners of the company for 9 months ended 2019 was $6.7 million or $0.09 per basic and diluted share compared to net income attributable to owners of the company of $16.4 million or $0.21 per basic and diluted share for the 9 months of 2018. (foreign language)

Moving to the balance sheet. As of September 30, 2019, Pingtan's cash and cash equivalents were $20.4 million, total assets were $392.8 million, total long-term debt was $125.1 million and total shareholders' equity was $155.2 million (sic) [$154.2 million], compared to $2 million, $247 million, $22.3 million, $151.6 million, respectively, on December 31, 2008 (sic) [2018] (foreign language)

To conclude, we continue focusing on territorial and fleet expansion and increase of fishing methods to further enhance production capacity and enrich product mix. We are actively planning and exploring for expansion of the business to seafood deep processing market and reach directly to end customers, both online and offline. Meanwhile, we will further explore e-commerce seafood retail business to enhance the entire industry chain and develop new distribution channels to penetrate China's inland provinces. (foreign language)

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Unidentified Company Representative, [6]

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With that, Jesse, let's start the Q&A.

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. (foreign language)

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from [Aidee Check] with Citi Capital.

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Unidentified Analyst, [2]

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(foreign language)

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Unidentified Company Representative, [3]

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I want to address this question to Mr. Zhuo.

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Unidentified Analyst, [4]

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(foreign language)

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Unidentified Company Representative, [5]

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Sir, may I translate?

These questions were addressed to Mr. Zhou. The first question is, thank you very much, Mr. Zhuo, for your efforts in lifting the production capacity at PME. And my question is, when will PME start the dividend distribution?

The answer was now PME is focused on the improvement of production capacity. So we would like to see this job first, and then we will start thinking about the distribution plan.

Second question, you talked about the seafood processing factory that is under construction. So I would like to ask when will this factory be completed?

Answer was, this factory will be completed in the first half of 2020.

And also, what was the equity structure designed for this factory? And this equity structure was wholly owned by PME.

The third question was, the volume of production at PME now is remaining more or less the same. But PME has more fishing vessels in operation in different waters. So why is the fishing production is not increased by a large margin?

Answer was, because the third quarter was a monsoon season, and it was very difficult to transport back the catches in different waters. And since the different vessels have been deployed in different waters caught different species of fish, and they were sold at different prices. That's why the revenues did not see an obvious increase compared with the previous quarters.

And fourth question was, as we have seen in the third quarter of this year, PME only received a subsidy of USD 5 million and there the subsidies is critical in the future?

Answer was according to the national strategic planning of the provincial government and to be more exact, during the 13th 5-year plan by the provincial government, the government will make some adjustment to the subsidy structure to the fishing industry. Actually, the subsidies received in the third quarter and fourth -- third quarter was bigger than the previous quarter and quarter 4 will be even bigger. And actually, in the first quarter of 2020, we will receive even bigger subsidies, but the adjustments are being made and will be incremented in the future. So we are waiting for the release of a concrete plan by the government.

The fifth question was, can we now have more vessels in operation in different fishing grounds around the globe? As far as I know, is there any vessels that are not operational?

Yes, there are a few vessels that are not in operation at the moment. At the moment, we are strengthening our efforts in exploring and expanding new fishing grounds. And in February -- in December this year, there will be 6 vessels that are being deployed to the international waters of the Indian Ocean.

The next question was, the volume of catches should be bigger and will be even bigger according to the fact that PME is strengthening its efforts in exploring new fishing grounds and expanding its fleet of fishing vessels. So do you have any concrete projection or forecast for the future production volume?

Yes, we will see an increase in the production volume in the future. But since everything is changing, and there's a lot of uncertainties at work, no one can make concrete projections at the moment. But as we think, the fourth quarter of this year will have a bigger volume of production because there will be more vessels in operation, and they are operating in different fishing grounds. There will be a more diverse species of catches. So we will keep the investors updated and we will release results in a timely manner. That's all.

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Operator [6]

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(Operator Instructions). It appears we have no additional questions at this time. So I'd like to pass the floor back over to management for any additional concluding comments.

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Yang Yu, Pingtan Marine Enterprise Ltd. - CFO & Secretary [7]

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Thank you, Jesse. Thanks, again, to all of you for joining us today. We look forward to speaking with you again in March results 2020 after we report our fourth quarter and year-end financial results. As always, we welcome any visitors to our office in Fuzhou, China. Thank you. (foreign language)

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Operator [8]

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Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation, and you may disconnect your lines at this time.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]