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An engineer interested in human behavior and thinking.
  • Why Is A Paper Company Invisible In Paper Industry But Shining On Wall Street?  2 comments
    Jul 28, 2010 11:43 AM | about stocks: ONP
    After checking through the top 20 companies in Chinese Paper Industry in my previous blog, I came to the conclusion that ONP is not worth investing, even if there were no controversy of fraud. In the US, if you talk to a venture capitalist about a new idea, you have to do competition analysis. A key point is how many competitors there are or will be. If you are the number one, you name the price. If you are the number three, he has to cut the price, because it is risky. How about number five? Just forget about it. But people may argue that it is China, which has larger population and should use more papers. (Actually they only use a few per cent of that of Americans per capita).
    How about this?
    1)    Search for a top 100 list.
    2)    Find a rival of ONP in its hometown (I have given big one in its future of digital photo paper).
    The following is the analysis by a prestigious Chinese industry organization, providing research reports on many markets.
    In 2010, the top 100 companies in Chinese Paper Industry are as follows.
    1. 华泰集团有限公司
    2.
    山东太阳纸业股份有限公司
    3.
    金东纸业(江苏)股份有限公司
    4.
    山东博汇集团有限公司
    5.
    山东晨鸣纸业集团股份有限公司
    6.
    山东泉林纸业有限责任公司
    7.
    山东(临清)银河纸业集团有限公司
    8.
    湖南泰格林纸集团有限责任公司
    9.
    东莞玖龙纸业有限公司
    10.
    芬欧汇川(常熟)纸业有限公司
    11.
    宁波亚洲浆纸业有限公司
    12.
    玖龙纸业(太仓)有限公司
    13.
    漯河银鸽实业集团有限公司
    14.
    江苏理文造纸有限公司
    15.
    新乡新亚集团股份有限公司
    16.
    东莞海龙纸业有限公司
    17.
    金华盛纸业(苏州)有限公司
    18.
    安徽山鹰纸业股份有限公司
    19.
    金红叶纸业(苏州)有限公司
    20.
    广州造纸股份有限公司
    21.
    山东华金集团有限公司
    22.
    江西晨鸣纸业有限公司
    23.
    宁波中华纸业有限公司
    24.
    浙江景兴纸业股份有限公司
    25.
    山东照东方纸业集团有限公司(华东纸业有限公司)
    26.
    珠海经济特区红塔仁恒纸业有限公司
    27.
    武汉晨鸣汉阳纸业股份有限公司
    28.
    河南省恒兴纸业股份有限公司
    29.
    山东亚太森博浆纸有限公司
    30.
    维达纸业广东有限公司
    31.
    浙江吉安纸容器有限公司
    32.
    吉林晨鸣纸业有限责任公司
    33.
    东莞地龙纸业有限公司
    34.
    保定钞票纸厂
    35.
    昌乐世纪阳光纸业有限公司
    36.
    山东群星纸业有限公司
    37.
    亚龙纸制品(昆山)有限公司
    38.
    佛山华丰纸业有限公司
    39.
    许昌宏伟实业(集团)有限公司
    40.
    福建省青山纸业股份有限公司
    41.
    嘉兴市民丰特种纸股份有限公司
    42.
    山东泰山造纸有限责任公司
    43.
    海龙纸业(太仓)有限公司
    44.
    福建省南纸股份有限公司
    45.
    永丰余造纸(扬州)有限公司
    46.
    山东晨鸣纸业集团齐河板纸有限责任公司
    47.
    山东齐峰特种纸业股份有限公司
    48.
    青岛海王纸业股份有限公司
    49.
    保定市三联纸业有限公司
    50.
    森叶(清新)纸业有限公司
    51.
    广州万利达纸制品有限公司
    52.
    牡丹江恒丰纸业集团有限责任公司
    53.
    苏州紫兴纸业有限公司
    54.
    河南省新密市华强纸业有限公司
    55.
    新密市方圆纸业有限公司
    56.
    中冶美利纸业股份有限公司
    57.
    舞阳县银鸽纸产有限公司
    58.
    河南华丰纸业有限公司
    59.
    新密市天园纸业有限公司
    60.
    佛山市南海区小塘造厂
    61.
    恒安漯河临颍卫生用品有限公司
    62.
    河北泛亚龙腾纸业有限公司
    63.
    中冶美利浆纸有限公司
    64.
    河南宏腾纸业有限公司
    65.
    中顺洁柔纸业股份有限公司
    66.
    河南省奥博纸业有限公司
    67.
    浙江华川实业集团有限公司
    68.
    新密市三明纸业有限公司
    69.
    潍坊凤凰纸业有限公司
    70.
    永州湘江纸业有限责任公司
    71.
    山东恒安纸业有限公司
    72.
    山东辰龙纸业股份有限公司
    73.
    乳山市乳华纸业有限公司
    74.
    江阴市长江纸业有限公司
    75.
    大宇制纸股份有限公司
    76.
    河南省龙泉集团实业有限公司
    77.
    山东天和纸业有限公司
    78.
    湖南恒安纸业有限公司
    79.
    河南双马纸品包装有限公司
    80.
    林州市实验纸业有限公司
    81.
    河北永新纸业有限公司
    82.
    浙江永泰纸业集团股份有限公司
    83.
    德州沪平永发造纸有限公司(平原县板纸厂)
    84.
    四川省犍为凤生纸业有限责任公司
    85.
    山东贵和纸业集团有限公司
    86.
    无锡荣成纸业有限公司
    87.
    潍坊恒德纸业有限公司
    88.
    郑州市久龙纸业有限公司
    89.
    山东正大纸业有限公司
    90.
    昆山钞票纸厂
    91.
    玖龙纸业(重庆)有限公司
    92.
    延边石岘白麓纸业股份有限公司
    93.
    德州华北纸业(集团)有限公司
    94.
    邓州市老廷实业有限总公司
    95.
    平原县兴正纸业有限公司
    96.
    福建省晋江优兰发纸业有限公司
    97.
    宜宾纸业股份有限公司
    98.
    山东省泉林纸业夏津有限公司
    99.
    滕州市华闻纸业有限责任公司
    100.
    福建省联盛纸业有限责任公司
     
    The No. 1 in 2008 has dropped to No.5 in 2010 and the No. 2 to No.3.
    ONP is still not seen here.
    What else can we say about ONP’s market presence? Maybe it is a local company? A big fish in a small pond, in a backward area where transportation is a barrier? Unfortunately, transportation in Bao Ding is good, which is probably the second largest city in He Bei province except Beijing and Tianjin.
    In addition, there are two paper mills on the list in its hometown (Bao Ding).
    No. 34. 保定钞票纸厂
    This company is specialized in making paper for cash bills and was founded in 1950s. This is where RMB is printed on. Because of this it is not comparable to ONP’s market.
     
    No. 49. 保定市三联纸业有限公司Bao Ding San Lian
    This company is in the same business as ONP claims.
    1.       Assets. 200 millions RMB.
    2.       Employees and R&D. 960, over 200 senior technical staff, and 5 well-known experts in the area as advisors. Middle-level managers have to attend training programs with the universities in the specialty (Many Chinese schools are traditionally more industry-oriented).
    3.       Scale. Volume 200, 000 tons per year and sales 580millions RMB.
    4.       Equipment. 6 production lines, some imported from Germany.
    5.       Facilities. Power plants, pollution processing plants.
    6.       Brand name and customers. 海联”. Customers include very well-known Chinese companies in supermarkets, diary, noodles and beers as well as Sony-Ericsson, Lenovo, Panasonic, LG, P&G, Lucky Film (its neighbor in film industry) etc.
     
    In summary, ONP can’t compare with any of these companies I have mentioned except for one thing: its production volume per person is significantly higher than any of them. (This is one of the reasons that people suspect it. How can one explain it considering its old equipment, small scale and non-existence of R&D, without going religious? I can imagine the struggle in the mind of his CEO, a technician, when he receives financial advises/commands that such and such numbers have to be such and such to look good on paper).
     
    So what would be the ranking for ONP? No. 101 or 1001? (Only if one can find one or 1).
     
    It is safe to say, even if ONP existed as it claims, its presence would mean much less than 1% in Chinese paper industry. ONP is simply not worth of investment.
     
    I know some people would ask: does that have anything to do with fraud?
    The connection is clear if you ask yourself this question:  
    How did No. 101 (or 1001) get so lucky to be listed on US stock market like a star if it is not worth investment?
     
    Why not one of those top 20 or 100? There are so many choices with greater potentials such as better R&D, larger plants, better equipments and facilities, better market or market positions. Many of them are not public companies, not listed anywhere in the world. All of them need more capitals, to buy better machines, to hire more people, to increase their volumes, to build better pollution processing plants, to select a better factory location close to waters or railways, or to buy out rivals.
     
    And the question of how it happened inevitably leads to the next one:
    Did Wall Street know that ONP is No. 101 (or No. 1001) in Chinese paper industry without R&D, using old equipment and with little market visibility?
    To these days, its promoters still show no signs they have knowledge of its relative strength in Chinese paper industry, whether it is about its old or new markets. If you check websites, ONP’s stories are MUCH more visible and FAVORABLE on English websites than its own Chinese counterparts. These superficial but exciting English stories are targeted at American investors, not paper markets. These stories are apparently not the works of ONP’s CEO or those who worked at its Chinese subsidiary, who know little about US stock markets and US investors. Note that there are dozens of institution and mutual funds investors on ONP. The marketing of ONP demands a deep understanding of US financial market (mechanism, rules and psychology), takes a lot of efforts and needs a network in financial industries.
     
    So why are not ONP’s promoters showing they really know ONP is No. 101 (or No. 1001)?
    This is a serious question with respect to if the case is fraud.
    There are only two kinds of possible answers:
    1)       ONP’s promoters don’t know: they really knew nothing about Chinese paper industry and didn’t do due diligence.
    2)       They actually knew it but chose not to say it.
     
    Either way, you know it is no good. That is why ONP has to retain a law firm: some of its institution investors are starting to feel they have been fooled. And the targets I suspect are not just ONP. For some, it is not a matter whether to get off the ship, but how.
     
    The ONP case is like a shell my children got from beach: it is the hermit crab in it that moves it.

    From statistical decision theory, you can make judgment yourself, when these facts are known, which hypothesis is more likely. That may be the topic of the next article.
     


    Disclosure: short
    Stocks: ONP
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Comments (2)
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  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    I found this post very helpful. International paper (IP) also has a mill in Hebei Boading. You can find it on their website or in their last 10k. Whereas ONP claims to make just the corrugated paper for a cardboard box, the IP mill makes the whole cardboard box. Not only will they make the whole cardboard box, maybe they will even deliver for you? With ONP, you can only get the corrugated paper, you have to pick it up (ONP doesn't deliver), you have to get other suppliers to provide you with the other parts for the box like the liner, and you have to assemble the box yourself. Which would you choose?
    30 Jul 2010, 02:27 AM Reply Like
  • mikeyu
    , contributor
    Comments (7) | Send Message
     
    Author’s reply » Seasaw64, I agree. Basically, it's just a paper company in the sense of paper tiger. One simply can't put the parts together for ONP, no matter which way one tries. There are just too many missing parts in reality check, as you have found out yourself. Just do this in case that there are still institution investors left on board. Make sure all of them be gone and then the game will be over.
    30 Jul 2010, 08:38 PM Reply Like
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