Good non-biased analysis of Guilin Paper Company
I guess I am continuing to research Guilin Paper to at the very
least set my mind at ease about buying this stock. I was doing a web
search for LITA brand paper which Guilin says is one of their most
popular paper products when I came across this analysis of Guilin.
I could be wrong but I did not see any indicators that the report is
biased
Source = http://chinaotcplayer.blogspot.com/2007/12/bargain-hunting-for-risk-
add this text to end of link listed above to get there
averse-part-3.html
Sunday, December 2, 2007
Company Description
Established in 1937 with a long and solid history, Guilin Paper
(GUPR.OB) is engaged in paper making and paper pulp production. The
company's products include high quality kraft and specialty paper
under the well-respected "Lita" brand. With its aim of "Quality First,
Reputation First", GUPR's products have won many prizes including
"Guangxi Famous Brand Products" in 2001 and "Guangxi Famous
Trademarks" in 2004. It is the first paper-making company in Guangxi
province to obtain the ISO 9001 certification.
The company is situated in Lipu County near Guilin, where timber and
water resources are plentiful. But the company is well aware of the
need to implement sustainable practices. To this end, GUPR embarked in
2007 to create greater efficiencies through upgrading technology,
resulting in a 38% reduction in water consumption and a 27% reduction
in waste water discharge. In addition, the company also reduced its
solid waste and cut its sulfur dioxide emission by a whopping 80%.
Guilin Paper has its own power generation plant that is able to supply
the power-intensive operations with electricity at 1/3 below market
price. It also has its own in-house recycling plant.
The management has recently announced that their goal is for the
company to become one of the ten largest paper producers in China,
continuing to explore green technology and sustainable methods of
production.
Current Price: $0.95
52-Week Range: $0.40-$1.80
Evaluation
While the company has been growing at a leisurely pace in the past (in
an industry that is projected to grow at 9.2% for the next 5 years),
it is positioning itself for a higher rate of growth. Apart from
increasing efficiencies and upping brand awareness both domestically
and overseas, it is looking to make selective acquisitions. This is
especially important when you realize that the company is currently
operating at its full capacity of 100,000 tons. This strategy is
already in effect. Just last week, it offered to buy Feitao Paper,
whose 2006 revenues was approx. $5m and net income $0.43m. In
addition, to diversify its income streams, Guilin entered into an
agreement with Dabu Paper to sell wood pulp, supplying up to 20% of
Dabu's pulp requirement. I think this is but a taste of what is to
come.
Valuation
This is an established and profitable company but not considered a
traditional "high-growth" stock because of the industry it is in.
However, the company's strategy of acquiring companies as well as new
technology bodes well for investors. The company's improvements in
efficiencies have translated into high net income growth despite
moderate revenue increases, as illustrated in its Q3 results:
9-Month Revenues: (2006) $22.09m (2007) $23.38m - a 5.8% growth yoy
9-Month Net Income: (2006) $2.55m (2007) $3.80m - a 49.0% growth yoy
Growth in the last quarter was even more impressive:
3-Month Net Income: (2006) 0.66m (2007) $1.67m - a 153% growth yoy!
With these numbers I would certainly consider GUPR to be a growth
stock, and this is before accounting for any acquisitions.
EPS: (2006) -0.01 (2007) 0.11* (2008) 0.17*
P/E: (2007) 8.6x (2008) 5.6x
PEG: 0.29*
* Based on C.O.P. estimates.
Investment Risk: Moderate.
Bottom Line: Accumulate.
My Position: None.
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