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 Tracking 1271 U.S. listed China Stocks and Counting...
 Tracking 3167 U.S. Stocks and Counting...

 Orchids Paper Pro (NYSE AMEX:TIS)

Friday, August 21, 2009

This morning Orchids Paper Products announced the pricing of 750,000 common shares at $18.50.  This represents an increase of 12% in Orchid's outstanding shares .

Normally the street might react negatively to this type of news.  But in this case the market has seemed to embrace the move.  The GeoTeam® is speculating that investors are initially agreeable to Orchid's intended use of the proceeds, believing it could dramatically improve the Company's growth profile.

Use of proceeds:

  • Construction of a warehouse
  • The purchase and installation of a new converting line
  • General corporate purposes

correlates with the company's previously stated goals:

"We currently are reviewing our logistics operations and our strategy of employing a third-party warehouse. The results of this study may indicate a need to expand our current warehouse facility and eliminate the use of the third-party warehouse. We are also studying a project to purchase a new converting line to aid in our strategy to increase sales and profitability and to consume all of our paper making production in our converting operation."

The most significant use of proceeds is the addition of an additional converting line. The GeoTeam® has participated in Orchids Paper Products conference calls and attended investor presentation meetings where investors expressed an eagerness for the Company to expand its converting division.

"We are currently approaching full capacity utilization of our converting operations."

This fact is reflected in 2010 estimates which portray earnings per share growing only 5% from 2009 forecasted levels. 

Benefits TIS hopes to gain from the construction of a warehouse and the purchase and installation of a new converting line:

  • We plan to increase our converting capacity by approximately 4.0 million cases annually with the installation of a new converting line and construction of a warehouse.  The Company's current 300,000 square-foot converting facility has the potential capacity to produce approximately 7.7 million cases of at-home tissue products a year.  This represent a 48% increase in annual capacity.
  • Additional capacity will enable us to both increase sales of existing products and to provide the flexibility to manufacture higher tier products for sales to our core customer base and into new retail channel
  • We believe with additional capacity from our new converting line, we will be able to significantly increase the addressable customer base of our business.
  • We believe that having the additional capacity to provide both value and mid-tier product lines will enable us to meet a larger percentage of our customers' total tissue needs.
  • Our planned warehouse expansion and new converting line project, which we expect to be completed in 2010, should further improve our manufacturing efficiency and lower costs.

The GeoTeam® will monitor any revisions to analyst estimates.  It is likely that 2009 EPS estimates may come down 12%, but see an increase in 2010 estimates.  The 2010 EPS estimate will be dependent on when the conversion line is completed.

Tuesday, August 4, 2009

New article available for Orchids Paper Products

Friday, February 27, 2009

Conference Call Note:

The GeoTeam participated in the TIS conference call conducted at 11:00 AM EST on February 26, 2009.  The company did a good job addressing the following comments contained in its third quarter press release:

"We have seen softening in the parent roll market, both in price and demand, primarily due to a weakened away-from-home market. In order to balance our inventories, we expect to take some downtime on our older machines during the first quarter of 2009. The amount of downtime we expect to take is not completely clear at this time due to the uncertainty of the timing of the recovery of the away-from-home market; however we do not expect it to be significant."

It seems that this comment may have caused some investors to sell their TIS positions.  However, the company did address the parent roll situation on the call implying that the negative impact on their business willll be minimal.   As of the fourth quarter the parent roll business is less than 15% of revenues and decreasing.   Also, the contribution of this business to the bottom line is less than the larger more profitable conversion business.  The company's focus for the future is to grow their conversion business which, as confirmed on the call,  was still strong and growing.  The company seemed optimistic about the coming year.

Please see Orchids Paper updated valuation scenarios.

Thursday, February 26, 2009

TIS reports strong fourth quarter financial results. 

The company did mention that they were seeing some weakness in their parent roll division.  The parent roll business comprised approximately 17% their total 2008 sales and 13% of their fourth quarter 2008 sales. As a result they will be shutting down production on some older parent roll machines. The company believes this down time will not occur for a significant amount of time.

The GeoTeam® will participate in the conference call at 11:00 AM EST on February 26, 2009 and attempt to get some insight into the significance of the parent roll situation.  The GeoTeam® believes that the affect on the business will be minimal as the parent roll margins are less than the converted roll margins.

Monday, December 29, 2008

New Geo feature: The GeoTeam® does not limit its research to just Asia, thus we will also be including some commentary on stocks based in the United States.

Understanding TIS:

The company has two main product lines:

    • The production of Bulk Tissue (parent rolls):  These products are sold to customers who then convert the rolls into finished products such as tissue paper. 
    • The conversion on Bulk Tissue into finished products (paper towels, bathroom tissue and paper napkins).

Margins should improve going forward because:

    • The company is focusing on selling all of its parent roll capacity as converted products which have higher margins than parent rolls.
    • The company recently improved its conversion process by identifying and addressing the root issues that impair production. As a result of these efforts, conversion productivity from the beginning of September through mid-October improved approximately 20% compared with the run rate experienced in the first eight months of 2008.
    • The company can manufacture 100% of its paper roll needs due to the purchase of a new paper machine in 2006.  Previously, the company had to purchase some of its paper roll inventory from the open market.

TIS is  recession resistant

TIS manufactures tissue paper products for private label markets.  The company might be able to benefit in a soft economy as consumers opt to buy cheaper private label brand products. The company sells its products to a wide variety of customers in addition to recession resistant discount retailers such as Walmart .

The following statement from the most recent SEC Annual Fling suggests the recession resistant nature of their business:

"Changes in the national economy, in general, do not materially affect the market for our products."

Strong Commentary

Comments in the recent third quarter report were very bullish:

'The current economic and credit crisis has had profound effects on many industries, however our current order backlog remains strong and we expect that situation to continue. While world-wide virgin pulp prices have seen significant decreases in recent months, the grades of waste paper we use to produce paper have not experienced price decreases to date.'

The company is fully taxed.  They have shown impressive EPS growth rates  in 2007 and 2008. They have had only two down quarters in the past 8 quarters.  Analyst estimates show 2009 EPS growing 84% to $1.40, assuming the company meets 2008 estimates.

TIS is selling at only a 5 P/E on the 2009 earning estimate of $1.40 and a current PEG Ratio of .035. The GeoTeam will interview ASAP, keeping in mind that this industry tends to have a low P/E.

Initiating a position