Gulf Resources, Inc. Q3 FY2022 earnings call

Management Statement and Operational Highlights

• The third quarter and nine-month results were strong with significant revenue, income from operations, and net income growth.
• COVID impacted bromine prices and delayed chemical factory equipment receipt.
• Bromine factory eight was prepared for production and expected to generate revenue in the fourth quarter 2022. Factories two and ten lacked government permission.
• Chemical factory opening delayed due to COVID and supply chain issues, with expected equipment delivery in current or first quarter 2023, installation taking 3-4 months, testing 2-3 months, and full commercial production starting around early 2024.
• Natural gas business awaited Sichuan government plan and remained open to partnerships with state-owned enterprises.

Segment Performance

• Bromine Segment:
  • Third quarter: Revenues increased 33% to approximately $19.8 million. Tonnes increased 6%, average selling price increased 26%. Gross profits were approximately $12.5 million, an increase of 50.1% from the previous year. Income from operations increased 53% to approximately $10.6 million.
  • Nine-month period: Revenues increased 41% to approximately $41.9 million. Gross profit was approximately $23.7 million compared to $13.8 million in the prior year. Income from operations more than doubled to approximately $17.2 million.
• Crude Salt Segment:
  • Third quarter: Revenues increased 3% to $2.9 million. Volume increased 3%. Income from operations increased 234% to approximately $1.9 million from $561,000.
  • Nine-month period: Revenues increased to approximately $5.5 million from $4.4 million. Gross profit more than doubled to $2.6 million from $1.1 million. Income from operations was $1.5 million compared to a loss of $1 million in the prior year.
• Chemical Products: Third quarter had zero revenue and a loss from operations of approximately $448,000.
• Natural Gas Segment: Third quarter had revenue of approximately $82,000 from equipment rental.

Guidance

• Third quarter actual revenues and profit before tax exceeded initial guidance.
• Fourth quarter 2022 projection for bromine and crude salt segments: revenues in the range of $15.4 million to $16.8 million, profit before tax in the range of $3.8 million to $4.2 million.
• Annual projection for bromine and crude salt segments revised to revenue of $62.7 million to $64.1 million and profit before tax of $22.4 million to $22.8 million, exceeding original guidance.

Risks

• COVID continues to impact business, causing bromine price softening and equipment delay for chemical factory.
• Uncertainty regarding government permission for factories two and ten.
• Supply chain disruptions affecting chemical factory opening.
• Competition from existing and new players in bromine and other related products.
• Changing technology and ability to develop future bromine assets.

Question and Answer

Q: How many more dollars of capital spending is needed to complete the bromine facilities to bring the three that are not currently online and how much more capital is needed for the chemical business to get that up and running?

A: For bromine factory eight, approximately $3 million has been spent with a few more dollars needed, but details on factories two and ten are unclear due to lack of government approval. For the chemical factory, CapEx expenditure is still within budget as disclosed in the 10-Q.

Q: In order to generate foreign currency, do you just need to make sales of products overseas? Or do you need to buy an overseas asset?

A: Hope to sell products overseas from the chemical factory once it starts production to generate foreign currency, and no plan to buy an overseas asset at this moment.