China Paper - under valued?

I have purchased an additional stake of 5 lots at 33 cts on top of my initial investment of 5 lots at 29.5 cts, bring my average price ot 31.74 cts. (see original posting here)

CP has just announced a very good set of Q1FY06 results, with revenue up 35.5% & net profit up 55.1%. My intrinsic value for this stock is almost 91 cts and dividend yield of more than 7%.

My purchase was partly prompted by Wallstraits who has taken 2,400 lots at average of 37.9cts. This stock is definitely not for "Permanent Holding" due to the commodity type of business and low barrier of entry. My investment is purely based on valuation basis due to current demand for paper products. For now, I would hold it at just this level due to some reservation about the transparency & corporate governance issue.


--------------------
(1) Open market disposal by Director, Li Han Pu 5/4/06

No. of Shares held before the change 145,950,000
As a percentage of issued share capital 36.4875 %

No. of Shares which are subject of this notice 49,950,000
As a percentage of issued share capital 12.4875 %

Amount of consideration (excluding brokerage and stamp duties) per share paid or received 0.4811

No. of Shares held after the change 96,000,000
As a percentage of issued share capital 24.00 %

(2) Open market disposal by Director, Li Han Pu 20/3/06

No. of Shares held before the change 160,000,000
As a percentage of issued share capital 40.00 %

No. of Shares which are subject of this notice 14050000
As a percentage of issued share capital 3.5125 %

Amount of consideration (excluding brokerage and stamp duties) per share paid or received 0.378

No. of Shares held after the change 145,950,000
As a percentage of issued share capital 36.4875 %

--------------------------------------------



Below some comments from CNA forum:
---------------------------

puzz

Joined: 01 May 2006
Posts: 27

Posted: Sun May 07, 2006 11:29 pm Post subject: China Paper: Post strong 1Q ,what Next?

--------------------------------------------------------------------------------

27/04/06 Dir Mr. Chen Yong Post 55% Net surge

Let take brief summary on CP;
14/7/04 Listing IPO @0.375 Hit high @ 0.415 first trading day.
since after,price steady,little fluctuated between 0.265 to 0.315
18/10/05: CFO resigned, CP drop to 0.20
22/10/05 price bound again to 0.27
28/02/06 Post FY05----25% net jump,EPS 0,37 RMB DPS 0.111
Cp trade @0.365
03/03/06 Dir start reduce stake
Mid /03/06: one Broker firm call ' Strong Buy. Target Price 0.63'
Cp surge to 0.515,top vol for several days.
trade steady Fr 0.485 to 0.510
Early April 06:The same broker firm suddenly call 'SELL. Target price
0.37.
CP hit and down to o,39 but manege to stand firm @0,40

05/04/06: CP dir stop reduce stake.remain at 24% holding.

Forumers War start,attacking/supporting
Attacker say' ...CFO resign on mid of financial year is a
bad signal.........'
' The problem with CP is the magamement has
zero creditility.............'
Supporters say' attack it, but still hold it n keep buying more...
' Trader stretagy......'
' What tactic is it,
http://www.chinapaperexpo.com/
industry.html....."

CP trade steady @ 0.40
27/04/06: Post FY 06 1Q ,strong result.
CP trade @0.40 to 0.425

04/05/06: XD,but still stand firm at 0.40

What Next? Hold? Buy? Sell?------all contradited.
What U say?

-------------------------

ming

Joined: 02 Aug 2005
Posts: 686

Posted: Mon May 08, 2006 8:48 am Post subject:

--------------------------------------------------------------------------------

ming wrote:
I heard from a fellow forummer that Curtis Montgomery has just entered a position into China Paper, should you follow?

Let’s recap some facts about China Paper.

- CFO resigned
- Auditors resigned in the middle of the financial year. Costs are cited but given the profitability of the company, it is hard to understand why the company did not retain KPMG to assure shareholders
- Share price falls before news of auditor resignation was made public
- Insiders have sold their substantial stakes in the company
- The stock price has gone up despite massive open market sales by insiders
- Financial results for China Paper continues to be good

This series of events is very troubling. It seems to suggest that the financial picture painted by the statutory filings is not entirely accurate. Short of the auditors refusing to sign off on the accounts, this is the clearest sign that there is something very wrong at China Paper.

*************************************************************

- Large multibillion dollar investments by the major players in the China paper market, hence there is a potential for over capacity
- Environmental regulation is a possibility as China strives to clean up
- China Paper is a very small paper manufacturer. It is not amongst the top 20 producers in China

The above points suggest that China Paper will face pricing pressures in the near future even as its costs related to complying with new environmental regulations escalate. So even if there are no problems with the past accounts, prospects for this company are likely to be a lot dimmer than their past performance suggests.

Montgomery has said many times that he makes decisions that are right for him and that it may not be in people’s interest to follow him. I would urge all who have gotten excited by Wall Straits purchase of China Paper to give serious thought to that statement. I still hold that some party out there holds a large quantity of China Paper shares which they cannot off load onto the market. It is only because someone has been willing to mop up all the shares coming onto the market that the price of China Paper shares has not fallen as much as the massive open market sales by insiders would suggest. The stock’s inability to rise despite good Q1 results points to exhaustion on the part of the parties manipulating the stock price.

As always, good luck to all!


Gordon Gecko wrote:
The problem with China Paper is that the management has zero creditibility.

An analyst wrote in black and white (short of calling the Chairman a two face liar) saying the management cannot be trusted, all bets are off!!!

I was at the AGM a few days back and questioned the Chairman, "How can you as a businessmen let a person get away with defaming you? Calling you a liar (though not in those exact words) and mentioning that nothing you say can be trusted or believe?"

The Chairman's inaction, indifference (not pressing ahead with a lawsuit for slander/defamation), only leads me to believe that the analyst probably has witnesses or recorded the meeting (and is able to justify his allegations).

The other conspiracy theory is that the analyst and the Chairman of China Paper are in some kind of scandal together (price manipulation). There are conjectures that the big sell off was to a friendly party.

Personally, I am shocked that MAS or SGX did not probe into the possible conspiracy.

One day the analyst calls for a Strong Buy based on rare combinations of:
1. Solid earnings growth of average 22% per year for FY06, 07 and 08 (based on this analyst's forecast).
2. Attractive valuation of only 5X PE
3. Solid ROE 30%+
4. Awesome dividend yield 6%+

Few days later, this analyst calls for a Sell because management cannot be trusted!! Management conned him (analyst) about not selling more shares in the open market.

All of a sudden, everything the analyst mentioned earlier for his Buy recommendation disappears in smoke. In other words, the accounts may be doctored!!! "Nothing the management says or reports can be trusted!"

Management has no reaction to the allegations. This makes me highly suspicious that something is definitely amiss.

The biggest worry about China Paper right now is that the books may be cooked up (creative accountings).

I insisted that the Auditors should be changed to one that is more reputable (like the big four). Fellow shareholders agreed (during the vote at the AGM) and management has agreed to put this up to the audit committee. I doubt they will do anything (more empty promises).

There is something not right here (possible conspiracy), SGX and MAS should probe before its too late.

-------------------------------

DanielXX

Joined: 19 May 2005
Posts: 295

Posted: Sat May 27, 2006 4:36 pm Post subject:

--------------------------------------------------------------------------------

Only a very select group of China stocks will resurface and rebound following the recent correction. Once bitten twice shy. Where is the liquidity going to come from? Definitely not retail.... there are many now who will be wary of over-bidding share prices, and especially so for China stocks I'm afraid. There are tons of stocks with attractive valuations, and perhaps one lesson we should all learn is that institutional buying doesn't mean anything. Look at the placements and institutional sales that were done in the past few months at prices which are substantially above what the stocks are trading at now.... Man Wah, ASL Marine, Sunray, Hongguo, Celestial (to JF Asset Mgt), and of course all the IPOs.

Does China Paper have a competitive industry position? Not that I know of, based on what I've read and of China government's plans to clean up and consolidate this particular industry. Those investing must be very wary of this particular risk and track the position of the entire industry. Furthermore, the demand-supply dynamics of such undifferentiated goods can be considered as highly cyclical, similar to chemicals, so monitor doubly vigilantly. Invest for the right reasons, and not just because PE is low (tons of companies to choose from now) or earnings track record is good (so was SP Chemical's before it reversed drastically). I know you must take risks to take profits, but at least be aware of WHAT risks.

Q&A with TT International : 26 May 2006

After the announcement of FY06 results, I decided to email to Executive Director, Ms JuliaTong to post some questions to provide some further insight into this company's future.

I started investing in this counter in Dec 2003, attracted by it's consistent growth, powered by the AKIRA sales. From the FY06 results, the growth of AKIRA sales has visibly slowed down (+11%), probably due to higher comparative sales base as well as more intense competition, while the branded products sales continued its down trend amidst a slower decline.

There are several concerns that I think TT would face:
(a) increased competition in AKIRA targeted market
(b) increased interest burden due to rising interest rate & the business undertaking more of distribution business which would increase its funding needs
(c) declining branded product sales
(d) movement in freight charges

From the response to (a) to (c), my concerns proved to be a valid one. The share price has been underperforming in view of the exceptional loss last year due to provision for compulsory land acquisition by Government for one of its warehouses as well as higher operating expenses, particular the freight charges. The current share is about 14.5 cts vs my average purchase price of 26.21 cts. A dividend of 0.9 cts has been declared, giving a 6% yield or 3.4% on my purchase price. Based on the latest results, my estimated intrinsic value for TT is about 23 cts.

In view of the current choppy market, I believe I should not enter more lots hastily as the share price is likely to move down after ex-dividend. Nevertheless, I may consider try to average down on a smaller scale, at a reasonable price say at 14 cts level.

----------------------------------
Response to questions from TT

Dear Mr Ng

It is our pleasure to have this opportunity to interact with our investors like you and we hope the information below will be able to provide you a better understanding of TT International and our business.

1. a) What are the major markets of Akira products?
AKIRA is fortunate to have the opportunity to leverage upon the entrenched
distribution network established by TT over the past years in some 60
countries worldwide, which could be broadly categorized into 4 regions namely:
ASEAN; Africa and the Middle East; CIS, Russia and Eastern Europe; East Asia
and others.

b) Are Akira products sold in China?
AKIRA products are currently not sold in China. Nonetheless, we do recognize
the importance and the market size of China and thus we do not rule out such
possibility when the opportunity arises and we are ready to go in.

c) Which are the markets you deem as having the greatest potential?
The main growth drivers for the company for the near term and medium term
will still be the emerging economies with favourable demographic patterns,
which may offer tremendous potential for our consistent growth in the medium
term and beyond.
For the immediate and medium terms, we would be focusing more on the
regions of ASEAN as well as the Middle East and Africa.

d) Can you provide some guidance on the contribution of the Singapore
market to the turnover of Akira?
Singapore market’s contribution to the turnover of AKIRA is less than 5%.


2. The turnover of Akira sales increased 11% for the latest financial year,
which was a slower growth compared with previous year (although this
growth was on a higher base). Based on my personal observations,
there are a number brands that may be targeting the same market (i.e.
low-middle income group) e.g. Shinco, Enzer etc,
a) Is this a cause for concern as the competitive pressure mounts?
Being in a very competitive industry like Consumer Electronics, dealing with
competition is part and parcel of our daily routine. Thus, knowing our
markets and products well and being relevant is critical in effectively
managing the competition. While our entrenched distribution networks and
niche markets serve as a buffer for fencing off the competition, we would also
put in serious efforts to better manage such concerns.

b) How do you differentiate your products from this range of
competitors?
In addition to the trendy and appealing product design, we will also adopt a
multi-facet approach by delivering consistent and reliable product quality,
good after sales service, adopting innovative niche marketing strategies,
taking a aggressive marketing approach in our diversified markets and
capitalizing on our well spread out distribution networks. These combined
efforts will strategically and competitively position AKIRA against other
competitors / brands.


c) Is there any brand equity measurement made by independent body
on Akira brand name and if there is, how much brand equity value?
AKIRA is the recipient of several awards that indicate growing confidence and
brand acceptance, not only in Singapore but also throughout the region.

AKIRA brand was valued as worth S$ 59 million by Inter Brand in November
2005.

AKIRA was named one of the 15 “Most Valuable Singapore Brands” at the
Singapore Brand Awards in 2004, the second year that the brand
has received an accolade at these Awards organized by International
Enterprise Singapore (a government body previously known as the Singapore
Trade Development Board) to honour local brands with strong local and
international appeal.

At the Singapore Brand Awards 2003, AKIRA was named one of the 15
“Strongest Singapore Brands” and was also singled out as the “Brand to
Watch” for being an upcoming, promising brand.


3. Is the production of Akira products outsourced to 3rd party contract
manufacturer located only in China ?
Currently, the production of AKIRA products are outsourced to 3rd party
contractors/manufacturers located in China and Korea.


4. The sales of branded goods had been declining for several years in a row. Is this trend likely to be reversed?
The global trend of more consumers substituting top brands with second tier brands to maximize their purchasing value for every dollar spent is likely to continue. While the branded goods faced intense competition from this trend, AKIRA has benefited by this trend receiving more consumer acceptance in many markets.


5. There was a significant swing in foreign exchange gain vs loss last year. Is the company's operations affected by the recently weakening of USD?
As an international trader, and more than 80% of our revenue received from
overseas markets, exchange risk is un-avoidable. Any appreciation or
depreciation of USD will impact us to a certain degree due to our large
business turnover. For any foreign exchange exposure that is not covered by
natural or forward contract hedging, we will, as far as possible, factor the
fluctuation in exchange rates, if any, into the selling price of our goods. We
believe that this will help to mitigate our foreign exchange risk and also
provide us with the flexibility to adjust our prices in-line with foreign currency
changes.


6. The financing costs had increased substantially and interest rates had risen. I'm concerned about the interest costs hitting the bottom line. Is the management addressing the level of borrowings for the company?
The shift towards more distribution business and the resultant requirement of
a higher level of financing, and the rise in interest rates led to higher finance
costs in the year under review.
In view of the increasing interest rates and higher finance cost, and for better
cash management, we have deliberately reduced the cash balance in FY06.

In addition, we are also putting in more resources in reviewing and managing
the stock holdings and debtors balances in order to minimize the working
capital requirements. In the case if interest rates hike prolong, we will be
able to factor the additional cost into the product selling price as it will be a
global factor rather than an unique factor affecting TT alone.


7. Lastly, I would like to thank you and the management for consistently declaring dividend to the shareholders, which is a consolation to us due to the depressed share price performance. I look forward to your response to the above.
I am happy to hear about your great support of TT and our house brand
AKIRA. With such support, we will continue to strive towards stronger growth
and greater heights.

Thank you once again for your continued support!

Best regards
julia

----------------------------------
Email to TT
----- Original Message -----

From: julia@tt-intl.com
To: "Kok Leong Ng"
Subject: Re: Fw: TT International
Date: Fri, 26 May 2006 17:46:56 +0800


Dear Mr. Ng

Thank you for your email and my apologies for the delay in reply as I was on leave for the last few days.

I attached herewith our replies to your questions, and would like to sincerely seek for your kind understanding that as a company listed on the SGX, TT International will not be able to discuss nor provide any market sensitive information or comments such as the expected contribution to turnover and profit, which are not already disclosed to the SGX and the public.
Hope the info attached could be of some help to you.

Thanks & Best Regards

julia




"Kok Leong Ng"
05/26/2006 09:44 AM
To julia@tt-intl.com
cc
Subject Fw: TT International







Dear Ms Tong,

I hope the email has reached you sucessfully, could you acknowledge receipt? Appreciate it.

Regards

Kok Leong


----- Original Message -----

From: "Kok Leong Ng"
To: "julia@tt-intl.com"
Subject: TT International
Date: Tue, 23 May 2006 09:01:37 -0500


Dear Ms Julia Tong,

Firstly, I would like to congratulate you on the respectable FY06 results you and your team have delivered. I am an investor in your company and I am keen to find out the latest development of the company based on the results just announced. I hope you can spare some of your valuable time for my questions below:

1. a) What are the major markets of Akira products?
b) Are Akira products sold in China?
c) Which are the markets you deem as having the greatest potential?
d) Can you provide some guidance on the contribution of the Singapore market to the turnover of Akira?

2. The turnover of Akira sales increased 11% for the latest financial year, which was a slower growth compared with previous year (although this growth was on a higher base). Based on my personal observations, there are a number brands that may be targeting the same market (i.e. low-middle income group) e.g. Shinco, Enzer etc,
a) Is this a cause for concern as the competitive pressure mounts?
b) How do you differentiate your products from this range of competitors?
c) Is there any brand equity measurement made by independent body on Akira brand name and if there is, how much brand equity value?

3. Is the production of Akira products outsourced to 3rd party contract manufacturer located only in China?

4. The sales of branded goods had been declining for several years in a row. Is this trend likely to be reversed?

5. There was a significant swing in foreign exchange gain vs loss last year. Is the company's operations affected by the recently weakening of USD?

6. The financing costs had increased substantially and interest rates had risen. I'm concerned about the interest costs hitting the bottom line. Is the management addressing the level of borrowings for the company?

Lastly, I would like to thank you and the management for consistently declaring dividend to the shareholders, which is a consolation to us due to the depressed share price performance. I look forward to your response to the above.

Best regards
Ng Kok Leong

--------------------------------------