Gulf Resources Inc (GURE) 2010 Q4 法說會逐字稿

At this time, I would like to welcome everyone to the Gulf Resources fourth-quarter and fiscal-year 2010 earnings conference call. (Operator Instructions). Thank you. Mr. Coulson, you may begin your conference.

Good morning, ladies and gentlemen, and good evening to those of you who are joining us from China, and we'd like to welcome all of you to Gulf Resources fourth-quarter and fiscal-year 2010 earnings conference call.

I am Crocker Coulson from CCG, the Company's investor relations firm. With us today on the call are Mr. Xiaobin Liu, the Company's CEO, and Mr. Min Li, the Company's Chief Financial Officer. Also joining us on the call is Johnny Huang of CCG, who will provide translation.

The management will proceed with today's prepared remarks only during today's call.

I'd like to remind our listeners that in this call, management's remarks contain forward-looking statements which are subject to risks and uncertainties, and management may make additional forward-looking statements. Therefore, the Company claims the protection of the 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 a number of risk factors, including but not limited to the general economic and 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 bromine and other oilfield, agricultural, and flame-retardant production chemicals; changes in technology; the ability to make future bromine asset purchases; and various other factors beyond the Company's control.

All forward-looking statements are expressly qualified in their entirety by this precautionary statement and the risk factors detailed with the Company's reports filed with the SEC. Accordingly, although the Company believes the expectations reflected in these forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.

In addition, any references to the Company's future performance represent management's estimates as of today, March 17, 2011. Gulf Resources assumes no obligation to update these projections in the future as market conditions change.

For those of you unable to listen to the entire call at this time, a replay will be available for 14 days. This call is also accessible through a webcast and link accessible through our website. Please look at our press release issued earlier today for the details.

It's now my pleasure to turn this call over to Mr. Liu, the Company's CEO, who's going to provide some initial remarks that will be translated by Johnny Huang.

(Interpreted). First of all, thank you for participating in our fourth-quarter and fiscal-year 2010 earnings conference call, despite the early hour. I also want to extend my gratitude to all our investors for their continued support this past year.

Strong bromine prices remained the main driver of our performance in the fourth quarter of 2010, driven by the ongoing imbalance between demand and supply.

While we have seen some stabilization of bromine prices in the winter months, we expect bromine prices to remain high because of growing demand for the raw material from the chemical industry in China.

I would now like to hand over the call to Crocker Coulson, who will present an overview of Gulf Resources' business development in the fourth quarter and the fiscal year 2010.

Thank you, Mr. Liu, and thank you, Johnny.

In the interest of time, I'm going to now continue with presenting the Company's results for the fourth-quarter 2010 on behalf of Mr. Liu, CEO of Gulf Resources.

The increased bromine prices helped us maintain strong growth momentum in the fourth quarter. The increase in selling prices mainly reflects the continued demand in China for brominated flame retardants, fumigants, water-purification compounds, dyes, medicines, disinfectants, and other bromine-based products, in addition to our successful price negotiations with our customers.

As a result, our average selling price for bromine reached approximately $3,800 per ton in Q4 of 2010, compared with approximately $2,100 in the same period last -- in March of 2011. Sorry, in the same period last year.

In March of 2011, market prices of bromine were approximately $4,500 per ton, which we believe is an appropriate approximation of our selling prices for the first half of 2011. Although the future price development is uncertain, with some quarter-to-quarter fluctuation, we believe the long-term demand outlook for bromine-based chemicals and compounds, coupled with limitations to increasing supply, will continue to support prices.

As a consequence of high bromine prices, our bromine and crude salt segment contributed to 71.5% of total revenue for the quarter. Within this segment, the sale of bromine contributed the majority, or 87%, of revenue, while the sale of crude salt contributed 13% of revenue.

Crude salt prices also edged higher, following the development in bromine prices, reaching approximately $40 per ton in the fourth quarter of 2010, compared to approximately $36 per ton in the same period last year.

Due to colder weather and preparation for the slowdown in production during the winter season, our bromine assets operated at approximately 56% of total capacity during the fourth quarter. For the full year, our utilization rate was between 70% and 75%, a level we consider appropriate to allow for sufficient downtime and maintenance to keep our production assets in proper operating condition.

The improvement in profitability for this quarter reflects higher bromine prices, increased economies of scale, and improved negotiating power with suppliers. Although raw material prices are higher compared to last year, bromine prices have increased faster than the general inflation in China, allowing us to increase profitability of our operations. Because of the current demand/supply balance, we remain confident that we will be able to transfer higher raw material costs to our end-user customers for the foreseeable future.

While the higher bromine prices have imposed challenges to acquire additional bromine production assets, we successfully leased a property with nonoperating bromine production assets in March. The annual lease payment for the property is RMB5 million, or approximately $760,000, per year for a term of 20 years. The owner of the property, Shouguang Qingshuibo Farm, has agreed for us to reconstruct and renovate the existing bromine facilities on the property and build 100 brine water drilling wells and transition ditches on the property. Owners land adjacent to the property.

We plan to finish the upgrades by the second half of 2011, and we expect the leased property to expand our annual production capacity by between 2,500 to 3,000 ton of bromine.

Demand for our chemical products remained robust. Supported by our new pesticide additives and environmentally-friendly oil and gas exploration, chemicals also remained robust. We plan to increase research and development efforts in the future to venture downstream into the production and commercialization of bromine-based chemicals in order to increase our sales going forward.

Now I'd like to discuss our financial performance for the quarter in greater detail.

Our revenue was $37.1 million for the fourth quarter of 2010, an increase of 26.4% from $29.4 million last year. The increase in net revenue was primarily attributable to the strong performance of our bromine and crude salt segment. Revenue from bromine and crude salt segment was $26.5 million, or 71.5% of total revenues, an increase of 36.4% from $19.5 million last year. The increase was mainly due to the increase in average selling prices of bromine.

Revenue from the chemical products segment was $10.6 million, or 28.5% of total revenue, for the fourth quarter of 2010, an increase of 6.6% from $9.9 million in the corresponding period last year. The increase was mainly due to solid demand for environmentally-friendly oil and gas exploration chemicals and agricultural intermediaries.

Gross profit for the fourth quarter of 2010 totaled $19.6 million, an increase of 45% from $13.5 million in the fourth quarter of 2009, and gross profit margin for the three months ended December 31, 2010, was 52.7%, compared to 46% for the corresponding three-month period last year. The improved gross margin was due to the higher ASPs for bromine.

Sales, marketing, and other operating expenses for Q4 were $41,000, compared to $5,000 for the corresponding period last year. The increase was mainly due to increased sales.

G&A expenses for the fourth quarter of 2010 were $2.9 million, compared to $3.2 million for the fourth quarter of 2009. The decrease was mainly due to lower warrant expenses.

Research and development expenses were 58 -- $587,000 for the fourth quarter of 2010, compared with $125,000 for the corresponding period last year. The increase was mainly due to R&D activities related to the new wastewater treatment chemical additives. As a result, income from operations for the fourth quarter of 2010 was $16.1 million, an increase of 57.6%, up from $10.2 million for the comparable period in 2009.

Our operating margin was 43.4% for the fourth quarter of 2010, compared to 34.7% for the fourth quarter of 2009.

For the fourth quarter of 2010, we incurred other income of $0.2 million, compared to point five million -- $0.6 million for the corresponding quarter last year, mainly due to a decrease in sundry income.

Income taxes were $4.3 million for Q4, an increase of 45.7% from $2.9 million in Q4 2009. Our net income was $12 million for the fourth quarter of 2010, up 77.5% from $6.8 million for the fourth quarter of 2009.

Diluted earnings per share in Q4 of 2010 were $0.35, compared to $0.21 per diluted share in the fourth quarter of 2009.

Now I'd like to discuss our business outlook for 2011. Bromine production is seasonally slower during the first quarter of the year because of cold weather that affect production and slower demand during Chinese New Year. However, as bromine supply remains limited in China, we believe prices will remain high in 2011.

We believe our current cash balance is sufficient for our working capital purposes, and to expand our production capacity moderately. The magnitude and timing of additional bromine production asset acquisitions depends on pricing of the targets and the quality of the assets, as we will carefully assess the return on investment of any acquisitions we make.

Because of the difficulties in closing additional acquisitions at reasonable prices in this environment of high bromine prices, we've started to assess opportunities to lease additional properties for production. This year, we also hope to realize more of the potential synergies between our bromine and chemical subsidiaries by commercializing chemical products that utilize bromine in their formulation, therefore better utilizing our raw material resources, of which our recent introduction of additives for wastewater treatment chemicals was the first step.

We are currently reviewing several other sectors in downstream bromine production, and believe the pharmaceutical industry remains very attractive due to its favorable demographics, regulatory process, and the fact that we began developing bromine-based pharmaceuticals several years ago.

In September of 2010, the Company announced a new share repurchase program, under which the Company may acquire up to 10 million of its issued and outstanding common shares. As of December of 2010, the management had yet to purchase any shares, and we'll continue to monitor the Company's stock price and exercise when appropriate.

The management is currently reviewing full-year production targets and bromine price trends in 2011. Management will provide 2011 full-year guidance before the 2011 first-quarter earnings conference call.

Management will not host a questions-and-answers section of the call at this time, so on behalf of the entire Gulf Resources management team, I'd like to thank all of you for your interest in Gulf Resources. If you have any interest in contacting or visiting the Company, please let the management team or us at CCG know.

Again, I'd like to thank all of you for joining us on this call. This now concludes Gulf Resources' fourth-quarter and fiscal-year 2010 earnings conference call.

Operator, thank you very much.

This does conclude today's conference call. You may now disconnect.

Portions of this transcript that are marked (Interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this event.