Orient Paper Inc.; A Special Situation in the Works?

Orient Paper Inc. (OTCBB:OPAI)  shares have been quietly rising in recent weeks.  The company engages mainly in the production and distribution of products such as copy paper, uncoated and coated paper, digital photo paper, corrugated paper, plastic paper, kraft paper, graphic design paper, anti-fraud thermal security paper and other paper and packaging-related products.

Recent Company Data (5/21/09)

Price = $0.42
Shares Outstanding = 45.1 Million
Trailing EPS = $0.21
Fully-Taxed Trailing EPS = $0.19
P/E Based on Fully-Taxed Trailing EPS = 2.3

The most recent development was the filing of its  SEC Form 10Q for its 2009 first quarter ended March. It seems that the company's liquidity situation has improved. 

Excerpt from 2008 10K, page 27:

"We had net working capital deficit of $1,165,795 on December 31, 2008, a decrease of $6,690,831 over a net working capital deficit of $7,856,626 on December 31, 2007."

Excerpt from 2009 March 10Q, page 5:

"We had net working capital of $2,013,660 on March 31, 2009, an increase of $3,179,455 over a net working capital deficit of ($15,253,388) on March 31, 2008."

The stock has increased in price nicely from since the 10Q filing. The GeoTeam® is perplexed as to why the company has not issued a press release for the first quarter of 2009.  The company did issue a release for its 2008 year ended December which contained 2009 guidance details:

"We expect total sales for 2009 to increase approximately 30% compared to 2008. These projections do not take into account any impact related to future financings or acquisitions. We believe we can continue to grow and improve our company's operating results."

The GeoTeam® could not find similar verbiage in the 2009 10Q, so it is unclear as to whether this outlook is still intact.  It is the opinion of  the GeoTeam's® that the company needs to do a better job with its investor relations effort.  Furthermore, we were unable to locate a United States representative.  Nevertheless, due to the improving liquidity situation, the GeoTeam® will continue to monitor the Orient Paper story and has initiated a small position.  We are hoping that investors will  reassess the stock's risk premium by assigning it a higher P/E than it's current P/E of 2x trailing fully taxed EPS.  The trailing EPS for OPAI is $0.21 ( $0.19 fully taxed). For 2008, the company reported a 100% increase in EPS to $0.20 ($0.18 fully taxed).

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