IT Tech Packaging Inc (ITP) 2016 Q3 法說會逐字稿

Hello, ladies and gentlemen, and welcome to participate in Orient Paper's third quarter of 2016 earnings conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode.

Joining us today are Mr. Zhenyong Liu, Orient Paper's Chairman and Chief Executive Officer, and Ms. Jing Hao, the Company's Chief Financial Officer.

Remarks from both Mr. Liu and Ms. Jing Hao will be delivered in English by interpreters. Orient Paper announced its third-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 key operational highlights over the third quarter of 2016, and then Ms. 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 the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts in this 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 or retain qualified senior management personnel and research and development staff and other risks detailed with the Company's filings with the Securities and Exchange Commission. These forward-looking statements involve known and unknown risks and uncertainties and 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 the 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 that this expectation will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results. T

here is a presentation document featuring management's prepared remarks, and it is now available for downward from the Company's website at www.orientpaperinc.com.

Please note that there will be discussions on non-GAAP financial measures 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 quoted in US dollars and all comparisons refer to the year-over-year comparisons, unless otherwise stated.

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

(Interpreted) Thank you, operator, and good morning, everyone. Thank you for joining Orient Paper's third quarter 2016 earnings conference call.

We are pleased to report solid financial results for the third quarter of 2016, with increase sales volume across all major product categories that more than offset decrease in overall average selling prices. As highlights of the quarter, our revenue increased by 15.6% year-over-year to $37.5 million, while net income increased by 80% to $3.0 million.

Our newly launched tissue paper product packaging business also generated $1.6 million in revenue, an almost five-fold increase versus the same period of last year. As for order trend, we started to see stabilizing trend for our major products over the past few months, and expect the trend to carry over into the beginning of 2017.

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

(Interpreted) Thanks, Tony, and thanks, everyone, for being on the call. Next, on behalf of the management team, I will summarize some key results for the third 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 number system for the production line is provided in our earnings press release and on slide number 17, the earnings call presentation.

Now, let's look at our financial performance for the third quarter of 2016. Please turn to slide number 7. For the third quarter of 2016, total revenue increased 15.6% to $37.5 million, due to the increase in sales for CMP and tissue paper products.

Turning to slide number 8, for the third quarter 2016, the CMP segment, including both regular CMP and lightweight CMP, generated revenue of $26.4 million, representing 70.6% of total revenues. $22.2 million of revenue was from our regular CMP products, and $4.2 million was from lightweight CMP. Volume for CMP segment increased by 28.9% to 81,035 tonnes, of which 68,422 tonnes was regular CMP and 12,613 tonnes was lightweight CMP.

Average selling price or ASP for regular CMP decreased by 9.5% to $325 per tonne, while ASP for lightweight CMP decreased 9.3% to $332 per tonne.

Turning to slide number 9, for the third quarter of 2016, our offset printing paper segment generated revenue of $9.3 million, representing 24.9% of total revenue. We shipped 14,571 tonnes of offset printing paper in the third quarter, increased 6.4% from the same period last year. ASP for offset printing paper also decreased by 5.7% to $641 per tonne. For the third quarter of 2016, tissue paper segment generated sales of $1.6 million. Volume of tissue paper was 1,327 tonnes and ASP was $1,227 per tonne.

For the third quarter of 2016, digital photo paper segment generated revenue of approximately $0.06 million, or 0.2% of total revenue. During the third quarter, we shipped 38 tonnes of digital photo paper. ASP for digital photo paper segment was $1,702 per tonne.

Slide number 10 summarizes the changes in our revenue mix. For the third quarter of 2016, cost of sales increased by $4.1 million to $30.1 million, leading to gross profit of $7.3 million from $6.4 million for the same period of last year, and gross margin of 19.6% decreased by 0.2 percentage points from the last year.

For the third quarter of 2016, SG&A expenses were $2.6 million, compared to $3.8 million for the same period of last year. The decrease was primarily due to the additional depreciation charges for idle PPE at the tissue paper plants in Wei County that took place in the third quarter of 2015.

For the third quarter of 2016, income from operations was $4.7 million, compared to $2.6 million for the same period of last year. Operating margin was 12.6%, compared to 8.0% for the same period of last year.

For the third quarter of 2016, net income was $3.0 million, or $0.14 per diluted share. This compared to net income of $1.7 million, or $0.08 per diluted share for the same period of last year.

For the third quarter of 2016, EBITDA increased by $0.7 million to $8.5 million from $7.8 million for the same period of last year.

Now I would like to shift gears to year-to-date financial results.

Turning to slide number 7, for the nine months ended September 30, 2016, total revenue increased by 3.2% to $103.4 million due to the increase in sales of tissue paper products, which was partially offset by the decrease in sales of regular CMP in the nine months of 2016.

Turning to slide number 8, for the nine months ended September 30, 2016, the CMP segment, including both regular CMP and lightweight CMP generated revenue of $71.1 million, representing 68.8% of total revenue. $59.6 million of revenue was from our regular CMP products, and $11.5 million was from lightweight CMP. Volume for CMP segment increased by 10.1% to 217,522 tonnes, of which 183,044 tonnes was regular CMP and 34,478 tonnes was lightweight CMP. ASP for regular CMP decreased by 11.7% to $326 per tonne, while ASP for lightweight CPM also decreased by 11.7% to $332 per tonne.

Turning to slide number 9, for the nine months ended September 30, 2016, our offset premium paper segment generated revenue of $26.9 million, representing 26.0% of total revenue. We shipped 41,440 tonnes offset printing paper for the nine months ended September 30, 2015, increased 7.5% from the same period of last year. ASP for offset premium paper decreased slightly by 5.7% to $650 per tonne.

For the nine months ended September 30, 2015, tissue paper segment generated sales of $4.7 million. Volume of tissue paper was 3,788 tonnes and ASP was $1,245 per tonne.

For the nine months ended September 30, 2016, digital photo paper segment generated revenue of approximately $0.7 million, or 0.6% of total revenue.

In June 2016, we shut down the production due to the market contraction, and we expect that our digital photo paper products will remain suspended in the near future. For the nine months ended September 30, 2016, we shipped [372] tonnes(corrected by company after the call) of digital photo paper, and ASP for the digital photo paper segment was $1,786 per tonne.

Slide number 10 summarizes the changes in our revenue mix. For the nine months ended September 30, 2016, cost of sales increased by $7.1 million to $85.4 million, leading to gross profit of $18.0 million, from $21.9 million last year and gross margin of 17.4% decreased by 4.4 [percentage points](corrected by company after the call) from that last year.

For the nine months ended September 30, 2016, SG&A expenses were $9.7 million, compared to $7.4 million for the same period of last year. The increase was primarily due to, first the increase in the depreciation expenses to our temporarily idle products programs and equipment at our new tissue plant in Wei County, and second, 1,133,915 shares of common stock granted under compensatory incentive plan valued at $1.4 million.

For the nine months ended September 30, 2016, income from operations was $8.3 million, compared to $14.5 million for the same period of last year. Operating margin was 8.0%, compared to 14.5% for the same period of last year. For the nine months ended September 30, 2016, net income was $4.2 million, or $0.20 per diluted share for the nine months ended September 30, 2016. This compared to net income of $9.4 million, or $0.46 per diluted share for the same period last year.

For the nine months ended September 30, 2016, EBITDA decreased by $5.1 million to $20.1 million from $25.1 million for the same period of last year.

Moving to slide number 19, let's look at our balance sheet and liquidity. As of September 30, 2016, the Company has cash and cash equivalents, short-term debt including notes payable and short-term bank loans, current obligation and capital lease, long-term debt including loans from credit unions and from related party and long-term obligations and capital lease of $5.6 million, $16.2 million, $9.3 million, $12.5 million and nil respectively. This compared to $2.6 million, $27.7 million, $6.9 million, $19.0 million and $3.2 million, respectively at the end of 2015.

Slide number 20 reflects our operating cash flow. Net cash provided by operating activities was $8.6 million for the nine months ended September 30, 2015, compared to $10.7 million for the same period of last year. Net cash used in investing activities was $7.7 million for the nine months ended September 30, 2016, compared to $11.3 million for the same period of last year. Net cash provided by financing activities was $2.2 million for the nine months ended September 30, 2016, compared to $1.4 million for the same period of last year.

If you have any questions, 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 third quarter 2016 earnings conference call. This concludes our call today, and we thank you all for listening in. Good day.