IT Tech Packaging Inc (ITP) 2016 Q2 法說會逐字稿

Hello, ladies and gentlemen, and welcome to participate in Orient Paper's second quarter of 2016 earnings conference call. At this time I would like to inform you that this conference is being recorded. Joining us today are Mr. Zhenyong Liu, Orient Paper's Chairman and Chief Executive Officer and Miss Jin Hao, the Company's Chief Financial Officer. Remarks from both Mr. Liu and Miss Hao will be delivered in English by interpreters.

Orient Paper announced its second-quarter 2016 financial results via press release yesterday, which can be found on the Company's website at www.orientpaperinc.com. First, Mr. Liu will brief you on the Company's operational highlights over the second quarter of 2016. And then Miss Hao will review the Company's financial results.

Before we start, I would like to draw your attention to our Safe Harbor Statement. Management's prepared remarks contain forward-looking statements within the meaning of Safe Harbor for reasons of the Private Securities Litigation Reform Act of 1995.

All statements other than statements of historical fact in its announcement are forward-looking statements, including but not limited to, anticipated revenues from the corrugating medium paper, tissue paper, offset printing paper and digital photo-paper business segments; the actions and initiatives of current and potential competitors; the Company's ability to introduce new products; the Company's ability to implement capacity expansion; market acceptance of new products; general economic and business conditions; the ability to attract and retain qualified senior management personnel and research and development staff and other risks detailed in the Company's filings with the Securities and Exchange Commission.

These forward-looking statements involve known and unknown risks and uncertainties are based on current expectations, assumptions, estimates and projections about the Company and the industry. The Company undertakes no obligation to update forward-looking statements to reflect subsequent or current events or circumstances, or to changes in its expectation, except as may be required by law.

Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that this expectation will turn out to be correct. And investors are cautioned that actual results may differ materially from the anticipated results.

There is a presentation document featuring management's prepared remarks and it is now available for download from the Company's website at www.orientpaperinc.com. Please note that there will be discussion on non-capped financial measure or EBITDA, or earnings before interest, taxes, depreciation and amortization. Please refer to our press release for a complete reconciliation of EBITDA to net income.

As a kind reminder, all numbers in our presentation are recorded in US dollars and all comparison refer to year-over-year comparisons, unless otherwise stated.

I would like to turn the call over to Mr. Liu. His comment will be delivered in English by Tony Tian from Weitian Investor Relations. Mr. Tian, please go ahead.

Thank you, Operator, and good morning, everyone. Thanks for joining our second-quarter 2016 earnings conference call. The overall business environment remained challenging for us during the second quarter of 2016 as China's economy continued to slow down and the RMB depreciation against the US dollar. As a result, our total revenue was down 8% compared with the same period of last year.

As some highlights for the second quarter, sales of tissue-paper products remained solid and generated $1.5 million in revenues. Sales volumes of offset printing paper also increased both sequentially and year-over-year.

Looking ahead, the macroeconomic environment and the state of the paper industry in China will continue to have significant impact on our financial performance. We expect that our tissue-product segment will continue to experience strong growth.

Now I will turn the call over to our CFO, Miss Jin Hao, who will review and comment on the second quarter financial results. Her comments will be delivered in English by my colleague Tina Xiao. Tina, please go ahead.

Thank you, Tony, and thanks everyone for being on the call. Next, on behalf of the management team, I will summarize some key financial results for the second quarter of 2016.

Also I will occasionally refer to specific production lines associated with various products. I will make clear to which products I'm referring to. For reference, though, the numbering system for our operation lines is provided in our earnings press release and the slide number 17 of the earnings call presentation.

Now let's look at our financial performance for the second quarter of 2016. Please turn to slide number 7. For the second quarter of 2016, total revenue decreased 8% to $38 million due to the decrease in sales of CMP, and was partially offset by increase in sales of tissue-paper products and digital-photo paper.

Next, turning to slide number 8, for the second quarter of 2016 the CMP segments, including both regular CMP and lightweight CMP, generated revenue of $25.8 million representing 67.8% of total revenue. $21.5 million of revenue was from our regular CMP products and $4.3 million was from lightweight CMP.

Volume for CMP segment decreased by [3.6%] (corrected by company after the call) to 78,487 tonnes, of which 65,620 tonnes was regular CMP and 12,867 tonnes was lightweight CMP. Average selling price, or ASP, for regular CMP decreased by 13.2% to $327 per tonne, while ASP for lightweight CMP decreased 13% to $334 per tonne.

Turning to slide number 9, for the second quarter of 2016 our offset printing-paper segment generated revenue of $10.4 million, representing 27.5% of total revenues. We shipped 15,984 tonnes offset printing paper in the second quarter, increase 6.7% from the same period last year. Average selling price for offset printing paper also decreased slightly by 6.3% to $654 per tonne.

For the second quarter of 2016 tissue-paper segment generated sales of $1.5 million. Volume of tissue paper was 1,194 tonnes and ASP was $1,250 per tonne. For the second quarter of 2016 digital-photo paper segment generated revenue of approximately $0.3 million or 0.8% of total revenue. During the second quarter we shipped 160 tonnes of digital-photo paper. ASP for digital-photo paper segment was $1,793 per tonne.

Slide number 10 summarize the changes in our revenue mix. For the second quarter of 2016 cost of sales increased by $0.3 million to $31.1 million, leading to gross profit of $6.9 million, decreased from last year and gross margin of 18.1%, decreased by 7.3 percentage points from last year.

For the second quarter of 2016 SG&A expenses was $2.7 million, compared to $1.8 million for the same period of last year. The increase was primarily due to the increase in the depreciation expenses for our temporary PPE at our new tissue-paper plant in Wei County.

For the second quarter of 2016 income from operations was $4.2 million compared to $8.6 million for the same period of last year. Operating margin was 11% compared to 21% for the same period of last year. For the second quarter of 2016 net income was $2.6 million, or $0.12 per basic and diluted share, for the second quarter of 2016. This compared to net income of $5.6 million, or $0.28 per basic and diluted share, for the same period last year.

For the second quarter of 2016 EBITA decreased by $3.3 million to $8 million from $11.3 million in the same period of last year.

Now let's shift gear to year-to-date financial results. For the six months ended June 30, 2016, total revenue decreased 2.8% to $65.9 million, due to the decrease in sales of regular CMP in the second quarter, and was partially offset by the increase in the sale of tissue-paper products and digital-photo paper.

Turning to slide number 8, for the six months ended June 30, 2016, the CMP segment, including both regular CMP and lightweight CMP, generated revenue of $44.6 million representing 67.7% of total revenue. $37.4 million of revenue was from our regular CMP products and $7.3 million was from lightweight CMP.

Volume for CMP segment increased by 1.3% to 136,487 tonnes, of which 114,622 tonnes was regular CMP and 21,865 was lightweight CMP. ASP for regular CMP decreased by 12.8% to $326 per tonne, while ASP for lightweight CMP also increased by 12.6% to $333 per tonne.

Turning to slide number 9, for the six months ended June 30, 2016, our offset printing-paper segment generated revenue of $17.6 million representing 26.7% of total revenue. We shipped 26,869 tonnes of offset printing paper for the six months ending June 30, 2016, increased 8.1% from the same period of last year. Average selling price of offset printing paper decreased slightly by 5.9% to $654 per tonne.

For the six months ended June 30, 2016, tissue-paper segment generated sales of $3.1 million. Volume of tissue paper was 2,461 tonnes and ASP $1,254 per ton. For the six months ended June 30, 2016, digital-photo paper segment generated revenue of approximately $0.6 million, or 0.9% of total revenues.

In October 2014 we shut down and disassembled our digital-photo paper production facility for the relocation and mandated by local government for a new workshop that we built across the street from our main product base, Xushui Paper Mill. We completed the relocation and resumed commercial production of digital-photo paper in August 2015.

In June 2016 we shut down the production due to the market contraction and we expect that our digital-photo paper production will remain suspended for the rest of 2016. For the six months ended June 30, 2016, we shipped 344 tonnes of digital-photo paper. ASP for digital-photo paper segment was $1,795 per tonne.

Slide number 10 summarizes the changes in our revenue mix. For the six months ended June 30, 2016, cost of sales increased by $2.9 million to $55.3 million, leading to gross profit of $10.7 million, decreased from last year, and gross margin of 16.2%, decreased by 6.7 percentage points from last year.

For the six months ended June 30, 2016, SG&A expenses were $7.1 million compared to $3.5 million for the same period last year. The increase was primarily due to the increase in the depreciation expenses for our temporary PPE at our new tissue-paper plant in Wei County. And 1,133,916 shares of common stock granted under compensatory incentive plans valued at $1.4 million.

For the six months ended June 30, 2016, income from operations was $3.6 million compared to income from operations of $11.9 million for the same period of last year. Operating margin was 5.4% compared to 17.6% for the same period last year.

For the six months ended June 30, 2016, net income was $1.2 million, or $0.06 per basic and diluted share, for the six months ended June 30, 2016. This compared to net income of $7.7 million, or $0.38 per basic and diluted share, for the same period of last year.

For the six months ended June 30, 2016, EBITDA decreased by $5.8 million to $11.6 million from $17.4 million for the same period of last year.

Moving to slide number 19, let's look at the balance sheet and liquidity. As of June 30, 2016, the Company had cash and cash equivalent, short-term debt, current obligations under capital lease, long-term debt and long-term obligations under capital lease of $4 million, $16.7 million, $9.5 million, $12.6 million and nil million, respectively.

This compared to $2.6 million, $28.1 million, $6.9 million, $19 million and $3.2 respectively at the end of 2015.

Slide number 20 reflects our operation cash flow. Net cash used in operating activities was $0.8 million for the six months ended June 30, 2016, compared to net cash provided by operating activities of $6.4 million for the same period of last year. Net cash used in investing activities was $2.1 million for the six months ended June 30, 2016, compared to $5.9 million for the same period of last year.

Net cash provided by financial activities was $4.4 million for the six months ended June 30, 2016, compared to net cash used in financing activities of $2.2 million for the same period of last year.

If you have any questions regarding the earnings press release and earnings results, please contact us through email at IR@orientpaperinc.com. Management will respond to your questions through emails as soon as possible.

Operator, please go ahead.

Thank you for attending Orient Paper's second-quarter 2016 earnings conference call. This concludes our call today and we thank you all for listening in. Goodbye.