The Long Case for Nine Dragons Paper Holdings

Zhang Yin ("Jang Yeen" is the pronunciation) richly deserves the title, "Queen of Trash". She built her empire by collecting scrap paper in the U.S., shipping it to China, then recycling and selling it to exploit that country's chronic paper shortage. This first venture was a paper trading company with an initial investment of $3,800.

Nine Dragons Paper Holdings Limited (NDGPF.PK), of which Ms. Yin owns 72%, is now one of the largest producers of packaging containerboard products. The company's value is now over 3 billion dollars and the indomitable Ms. Zhang is one of the wealthiest entrepreneurs in the world.

With its 2006 IPO, this company focused on expansion, both within China and without – with pronounced success.

A Chinese company for lovers of green stocks? Believe it!

As attractive as a paper recycling company is to the socially conscious investor, bringing additional joy is the fact that ND Paper's philosophy is "No environment, no paper." The phrase may seem simplistic in its English translation, but it's backed by sophisticated environmentally friendly equipment, technologies and processes at its facilities – a pleasant surprise in a nation not known for its environmental sensitivity.

A brief labor dispute last December at one of the company's production facilities was quickly resolved. But it no doubt contributed to the dramatic fall of the company's stock price from a late summer high of $3.50. It's slowing climbing back. When we first recommended the company on Feb. 21, its stock was priced at $1.75. It is now trading at $1.85, after hitting $1.90 yesterday.

With recent talk of expansion including new factory in Southwest China, pulp and timber projects in Southeast Asia, the announcement of a 3 million dollar investment in higher-end products like specialty paper and liquid paperboard, and a nice strong trend of increasing prices for packaging paper, this stock should see nice gains by August.

This Hong Kong-based company is especially compelling for those investors considering Asia as an escape from the volatility of U.S. stocks — not to mention those socially conscious investors looking to add to their green portfolios.

Nine Dragons Paper Holdings Limited trades as an Over-the-Counter stock and on the Hong Kong exchange.

I initially recommend you buy shares of NDGPF.PK at or under $1.90. Given recent momemntum, I feel comfortable upgrading that buying range to $2. Be aware that the trading volume of this ADR currently very thin. And keep in mind that this stock trades in board lots of 1,000 shares only. You also can buy directly from Hong Kong (2689 HK).

Disclosure: None

Comments

[Chris J]

19 Feb - quamnet.com
www.quamnet.com/analys...
Nine Dragons Paper (2689) has purchased an industrial property at a total consideration of $60.5M. The property is situated at Tianjin Ninghe Economic Development Area with a total site area of 3.88 million sqf. The site is believed to be used for setting up new factory. Nine Dragons Paper gained $0.3 or 2.1%, at $14.6.

Nine Dragons Paper (2689) plans to acquire the entire interests in Rui Song at RMB18M and Qian Wei at RMB2M, Rui Song and Qian Wei are engaged in the production of high value specialty board products. The management planned to combine the existing operations of Rui Son with Qian Wei, with a total CAPEX of RMB1.6B for the combination. The management expects the production commencement date to be before June 2010.