Fuwei Films (Holdings) Co., Ltd.

Good day, ladies and gentlemen, and welcome to the FUE Film First Quarter 2021 Earnings Conference Call. All lines have been placed on a listen-only mode. If you should require assistance throughout the conference, please press star zero on your telephone keypad to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Xue Yin. Sir, the floor is yours.

Thank you, Kat. Let me remind you that today's call is being recorded. A replay of this call will be made available shortly after the conclusion of today's call. Before we start, I would like to remind you that certain statements that are not of historical facts made during the course of this conference call about future events and projected financial results constitute forward-looking statements that are made pursuant to the safe harbor provisions of the private security litigation reform act in 1995. You should know that the company's actual results may differ materially from those projected in these statements due to a variety of factors affecting the business. Forward-looking statements are subject to risks and uncertainties. Discussion of the factors that may affect future results is contained in our filings with the U.S. Securities and Exchange Commission. We undertake no obligation to correct or update any forward-looking statements provided as a result of new information, future events, or changes in our expectations. And joining us on today's call is Mr. Yong Jiang, Corporate Secretary. Before I walk you through our financial results, Mr. Jiang will deliver his opening remarks. Sir, please go ahead. Thank you.

Hello, everyone. Thank you for attending today's meeting. Although the market environment is still in great demand, the COVID-19 epidemic is still ongoing. However, we have achieved a positive development trend in overall sales, especially in the number of sales that continue to grow, such as special mold and dry mold machine mold, accounting for 63.9% of total revenue. Among them, The high-quality and high-quality products of our company are used to produce the essential raw materials of dry film, while the dry film is an essential material of the electronic printing circuit board. The increase in sales of dry film with machine film is a confirmation of the quality of our products. We believe that the increase in orders will also help improve the performance of our company. In the future, we will continue to innovate and develop We will continue to work hard and hope that these efforts will give the company a new opportunity in the face of industry and economic challenges. Next, I will read the financial performance of the first quarter of 2021 for you. After that, I will answer your questions.

Hello, everyone, and thank you for joining us today. Despite the oversupply in the marketplace and the ongoing coronavirus pandemic, we achieved positive trends in overall sales, especially sales of specialty films, including base film for dry film, which accounted for 63.9% of our total revenues. Base film is a high-value-added and differentiated product, which is used to produce dry film that is used in printed circuit boards. Sales increase of base films for dry film demonstrates that the quality of our products is well recognized by our customers. We believe that the order growth also helps improve the company's financial performance. In the future, we remain committed to innovation in the financial and marketing strategy and expanding the end-user applications of our films products. We will continue with these efforts and expect that they will enable the company to capitalize on new opportunities despite challenging industry and economic conditions. Thank you, Mr. John. Now, sales during the first quarter were RMB 101.6 million, U.S. 15.5 million, compared to RMB 83.2 million during the same period in 2020, representing an increase of RMB 18.4 million, or 22.1%, mainly due to increased sales volume. The increase of sales volume led to an increase of RMB 12.2 million, and the increase of sales price resulted in an increase of RMB 6.2 million. In the first quarter, sales and specialty firms were RMB 65.0 million, U.S. 9.9 million, or 63.9% of total revenues as compared to RMB 39.9 million, or 47.9% in the same period of 2020. The increase was mainly due to increased sales volume. Overseas sales were RMB 9.0 million, or U.S. 1.4 million, or 8.9% of total revenues as compared with RMB 5.8 million or 6.9% of total revenues in the first quarter of 2020, representing an increase of RMB 3.2 million or 55.2%. The increase was mainly due to increased sales volume. Gross profit was RMB 42.5 million, U.S. 6.5 million, representing a gross margin of 41.8%. as compared to a gross profit of RMB 29.8 million and gross margin of 35.8% for the same period in 2020. Average product sales price increased by 6.5%, while average cost of goods sold decreased by 3.5%, compared to the same period in 2020. Consequently, the increase in average product sales price and a decrease in average cost of goods sold during the first quarter ended March 31st. 2021 contributed to the increase in gross profit and gross margin during the period. Operating expenses were RMB 10.5 million, U.S. 1.6 million, which was RMB 4.5 million, or 30.0%, lower than the same period in 2020. This increase was mainly due to the decrease in depreciation on the Dornier production line and the Toronto production line as assets of these two production lines were classified as assets held for sale. Net profit attributable to the company was 31.4 million, U.S. 4.8 million compared to net profit attributable to the company of RMB 13.0 million during the same period in 2020. Basic and diluted net benefit per share was RMB 9.60, U.S. 1.47, and RMB 3.97 for the three-month period ended March 31, 2021, and 2020, respectively. Total shareholder's equity was RMB 259.2 million or U.S. 39.6 million as of March 31, 2021, compared with RMB 227.8 million as of December 31, 2020. As of March 31, 2021, the company had 3,265,837 basic and diluted ordinary shares outstanding. In conclusion, we'd like to thank our shareholders for their continued loyalty and support. We believe we are well positioned to face the current challenges and are committed to providing value to our shareholders and customers. We will keep you informed of our progress. With that, Ms. Chandler will be happy to answer your questions.

Thank you. The floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. If your question has been answered, you can remove yourself from the queue by pressing 1. Again, please press star 1. If you do have a question, please hold while we pose for questions. Again, ladies and gentlemen, it's Star 1. And our first question comes from Steve Mantle from Mercury Capital. Go ahead, Steve.

Yes, I wonder if you could talk about the sustainability of margin improvements seen in this most recent quarter going forward into the next few quarters. Thank you.

Hi, Steve. Your line is a bit muffled. Can you just speak a little louder and a little slower, please?

Yes, could you speak to the sustainability of the margin improvements seen in this most recent quarter?

Oh, yes, sure. Okay. Mr. Jiang, the first question is about the continuity of our interest rate. What is the continuity of our interest rate growth in the first quarter? Mr. Jiang, let me answer.

Now, the increase in the strength of our product is related to the adjustment of the structure of our product, including our price, the increase in the price, and the increase in the proportion of our decentralized products. From the current business situation of the company, it should be said that the proportion of our decentralized products should be more stable, and there will be a certain degree of increase. We expect that in the future, the strength of the company should be relatively stable.

Okay, Steve, thanks for your question. So the change in the margin that you have witnessed recently is due to the change in product mix and also the price. So specifically, you know, the portion of the differentiated products that we are selling is we see that as stable with room for improvement while also we're seeing some increase in price as well. So overall, that gives us Will we think the margins should be sustainable in the near future?

So that addresses the gross margin, but what about the material decline in OPEX? How should we model that as a percent of sales going forward?

OK, Mr. Zhang, the next question is about operating costs. What is the trend of supply and demand in the recent period? How should investors think about this issue when they are making their own models? Now, let's look at the company. It should be the raw material market. There may be uncertainties in the future. Of course, the whole company's operation costs

Okay.

So, Steve, there might be some uncertainty on the raw material farm, but aside from that, we see the operating cost being stable going forward.

The final question with respect to sales mix via geography, I see in this quarter, Approximately 90% was China and approximately 10% was the rest of the world. Do we expect that mix, which saw quite a rise in the rest of the world, to continue to increase?

Okay, Mr. Jiang. The next question is about our sales. According to the data we have recently, 90% of sales are from China. Right. And then the remaining 10% is other places. And then his question is, in the future, will this proportion change? Especially our overseas market, will this part go further than this? At present, the food market is not very optimistic. Now, one reason is that the COVID-19 epidemic has decreased significantly.

In addition, the reactionary sales in South Korea and the United States will also have a certain impact on exports. It may increase, but the proportion should not be large. Currently, our main market is in the Chinese market. Thank you.

Okay, Steve. So the main market for our products will remain for China for the foreseeable future and for two reasons. Number one being still the uncertainty with the pandemic, especially in the rest of the world. And number two is that because of the anti-dumping measures in Korea and the U.S. against our products. So there's a possibility for some slight increase in the export, but overall China will remain our main market for the time being.

Great. If I could squeeze one more in. When do you expect the sale during your product line to complete?

President Jiang, the last question is about the production line sales. When do you expect it to be completed? Production line sales?

Is it our third line? Yes, it is. The production line is now complete.

Yeah, Steve, so that is already complete.

Okay, thank you very much.

Thank you, Steve.

Again, ladies and gentlemen, if you do have a question, please press star 1. And I'm not seeing any further questions at this time. I would now like to turn it back to management for any closing remarks. Thank you.

Thank you, Kat, and thank you all for joining us on today's conference call. We look forward to being in touch with you and will keep you updated of our progress. Thank you and have a great day.

Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time and have a wonderful day.