Orient Paper's Q1 net income jumps to US$2.5M from US$303,055 a year earlier, primarily due to below-normal level of production activities in Q1 2013 for the government environmental inspection; Q1 revenue up 30.4% to US$25.8M

Debra Garcia

Debra Garcia

May 15, 2014 – Orient Paper HB

BAODING, China , May 15, 2014 (press release) – Orient Paper, Inc. (NYSE MKT: ONP) ("Orient Paper" or the "Company"), a leading manufacturer and distributor of diversified paper products in North China, today announced its financial results for the first quarter ended March 31, 2014.

Financial Highlights:

US$ million

1Q 2014

YoY Change




Corrugating medium paper



Offset printing paper



Digital photo paper



Gross profit



Gross margin



Corrugating medium paper



Offset printing paper



Digital photo paper



Operating income



Net income






Pp represents percentage points


Key Highlights for First Quarter 2014:
Significant improvement year-over-year of key financial metrics with an over sevenfold increase in net income
PM1 conducting test runs to prepare for trial production. Early completion of PM1 renovation is expected during the second quarter.
PM6 monthly annualized utilization reached 80% in March2014
Full year 2014 guidance unchanged
Mr. Zhenyong Liu, Chairman and Chief Executive Officer of Orient Paper, commented, "Our first quarter results for 2014 has shown significant improvement on top-line and bottom-line figures. This is largely due to the normalization of operations in the period for both CMP and offset printing paper, which were affected by the county-wide environmental inspection in the first quarter of 2013."
Mr. Liu continued, "In addition, we are pleased to report a successful ramp up of PM6 with a utilization rate of 80% for March after our seasonally slower months of January-February due to the Chinese New Year break and scheduled annual equipment maintenance. This has contributed to the increase of our CMP sales volumes in the quarter, compared to the same period a year. We have also completed PM1 installation and are currently conducting test runs to prepare for trial production before we commence actual commercial production of insulation liner paper."
"Furthermore, we are very pleased to report that, through our continued efforts to optimize the production schedules at our digital photo paper facility since the second half of 2013, we are seeing an increase in digital photo paper production and a 76% growth in sales volumes, while minimizing disturbance to the neighboring residents," added Mr. Liu.
Financial Review:
Quarter ended March 2014 Financial Results compared with quarter ended March 2013
Changes in revenues, sales volumes, and Average Selling Prices ("ASPs") for 1Q 2014 are presented as follows:


Sales Volumes(Tonnes)

YOY Change


(US$ millions)

YOY Change



YOY Change

Corrugating Medium Paper







Offset Printing Paper







Digital Photo Paper







Total Revenue in the first quarter of 2014 was $25.8 million, an increase of 30.4% from $19.7 million for the previous year.
Corrugating Medium Paper ("CMP")
Revenue from CMP increased 35.6% to $17.1 million, representing a 66.4% of total revenue.
Volumes sold during the first quarter wereup37.1% to 45,335 tonnes. The increase is mainly due to the interruption of operation at our Xushui Paper Mill for government environment protection inspections in February and March 2013.
ASP dropped slightly (by 1.1%) year-over-year to $377/tonne.
Offset Printing Paper
Revenue from offset printing paper in the quarter increased 14.3% to $7.4 million, representing 28.6% of total revenue.
Volumes sold were up 14.9% to 10,860 tonnes. The increase is mainly due to the interruption of operation at our Xushui Paper Mill for government environment protection inspections in February and March 2013.
ASP decreased 0.4% year-over-year to $678/tonne.
Digital Photo Paper
Revenue from digital photo paper increased 85.6% to $1.3 million, representing5.0% of total revenue.
Volumes sold increased 76.2% to 326 tonnes, as a result of our continued efforts to optimize the production schedules at our digital photo paper facility since the second half of 2013, while minimizing disturbance to neighboring residences.
ASP increased 5.3% year-over-year to $3,970/tonne.
Cost of Sales
Cost of Sales in the first quarter of 2014 was $21.1 million, up16.4%, due to declining raw material price and the increased production quantities. CMP cost per tonne decreased from $349 in the first quarter of 2013 to $317 in the first quarter of 2014.
Gross Profit
Gross profit in the first quarter of 2014 was $4.7 million, up193.7% from $1.6 million for the first quarter of 2013. We benefited from the cheaper raw material unit cost and the resulting lower unit cost of sales relative to the very slight drop in product ASPs.
Overall gross margin in the first quarter of 2014 was 18.1%, up from8.3% for the first quarter of 2013. Gross profit margins for CMP, offset printing paper and digital photo paper for the first quarter of 2014 were 16.0%, 21.4% and 27.5%, respectively, compared to 8.5%, 8.3% and 3.3% respectively in the same period last year due to the low utilization of production capacity.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $908,916 for the first quarter of 2014, compared to$887,166 for the first quarter of 2013.
Income from Operations& Operating Margin
Income from operations was $3.8 million for the first quarter of 2014, up 406.3% from$743,071 for the first quarter of 2013, primarily due to the below-normal level of production activities in the first quarter of 2013 for the government environmental inspection.
Excluding the impact of interest expenses, income tax expenses, depreciation and amortization, EBITDA, a non-GAAP measurement, was $5.7million, up111.1% from $2.7 million. See Note 2 hereto for a reconciliation of Net Income to EBITDA.
Net Income
Net income was $2.5 million, up 735.9% from $303,055. The increase was primarily attributable to the below-normal level of production activities in the first quarter of 2013 for the government environmental inspection. Basic and diluted earnings per share for the first quarter of 2014 were $0.14, compared to $0.02 for the corresponding period of 2013.
Cash, Liquidity and Financial Position
As of March 31, 2014, cash and cash equivalents were $5.8million, compared to $16.6 million twelve months ago.
As of March 31, 2014, we had $31.5 million of current assets and $32.2 million of current liabilities (including $2.3 million of various related party payables), resulting in a working capital deficit of$648,599. As of March 31, 2014, shareholders' equity totaled $162.2 million, compared to $161.1 million at the end of 2013.
Operations and Business Updates
PM1 Modernization Plan
We have completed the installation of the new PM1 and are now conducting test runs to prepare for trial production of insulation liner paper. As announced earlier, Orient Paper has voluntarily shut down PM1 as part of its facility upgrade plan. The modernization plan is to convert PM1 into a more energy-efficient production line, producing insulation liner paper, which is used to sandwich certain insulation materials as a construction material for wall and floor insulation.  Revenue contribution from PM1 when operation commences is expected to be in the range of between $7 million to $9 million for 2014.
Tissue Paper Expansion (PM8 and PM9)
Building of the factory and other infrastructures for the tissue paper production facilities located in the Wei County Industrial Park in Hebei Province is largely completed while installation of PM8, the first 15,000 tonnes-per-year production line is underway with expected completion on or before the end of the second half of 2014.
The Company has also started planning for the installation of PM9, the second 15,000 tonnes-per-year tissue paper production line. If cash flow permits, installation could start by the end of the year, with a target to roll out production by the second half of 2015.
Industry analysts expect market demand to remain around the same pace as the last quarter, while continued action by the government to eliminate outdated capacity would help to curb surplus capacity in certain sectors in the paper industry. Raw material prices for domestically sourced recycled paper may remain lower but may show some volatility going forward, as paper mills in China attempt to reduce the imported OCC and take advantage of the domestic recycled paper.
Looking ahead, the Company intends to maintain strong operating cash flows, look for opportunities to restructure its short term liabilities, and to best utilize its available cash to support our investments and expansion. We plan to achieve this in the remaining quarters of the year by executing our business strategy. This includes the ramp up of PM6, commencing commercial production of the renovated PM1 and ramping up production thereafter. At the same time, we believe our future growth lies very much in our tissue business expansion and we would strive to complete the installation and launch of PM8 by the end of the year within our available resources.
2014 Guidance
The Company is maintaining its full year guidance for 2014, with revenue ranging between $146 million and $161 million, gross profit to be between $27 million and $30million, net income to be between $15million and $17million, and basic and diluted earnings per share between $0.81and $0.90.
Conference Call
Orient Paper's management will host a conference call for institutional and retail investors at 8:30 am US Eastern Time (5:30 am US Pacific Time/8:30 pm Beijing Time) on Friday, May 16, 2014, to discuss its quarterly results and recent business, operational and corporate activities.
To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time:

Mainland China:                                  


Hong Kong:                          


United States:                   






A replay of this conference call will be available by dialing:

Mainland China:                                  

400-632-2162 / 800-870-0205

Hong Kong:                          


United States:                   






The replay will be archived for fifteen days following the earnings announcement until May 31, 2014.
This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.orientpaperinc.com. Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. A replay will be archived for one year shortly after the call by accessing the same link.
About Orient Paper, Inc.
Orient Paper, Inc. ("Orient Paper") is a leading paper manufacturer in North China. Using recycled paper as its primary raw material, Orient Paper produces and distributes three types of paper products namely, packaging paper (corrugating medium paper), offset printing paper, and other paper products, including digital photo paper, and household/tissue paper that the company is currently expanding into.
With production operations based in Baoding in North China's Hebei Province, Orient Paper is located strategically close to the Beijing and Tianjin region, home to a growing base of industrial and manufacturing activities and one of the largest markets for paper products consumption in the country.
Orient Paper's production facilities are controlled and operated by its wholly owned subsidiary Shengde Holdings, Inc., which in turn controls and operates Baoding Shengde Paper Co., Ltd., and Hebei Baoding Orient Paper Milling Co., Ltd for manufacturing digital photo, printing and packaging paper.
Founded in 1996, ONP has been listed on the NYSE MKT Board since December 2009. (Please visit http://www.orientpaperinc.com.)

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