Zhenyong Liu - Chairman and Chief Executive Officer Jing Hao - Chief Financial Officer Victor Kuo - ICR, IR Rene Jiang - ICR, IR

Tim Clarkson - Van Clemens & Co., Inc. Joseph Furst - Furst Associates

Hello, ladies and gentlemen. And welcome to the Second Quarter 2015 Orient Paper Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and all participants are in a listen-only mode. With us today are Mr. Liu, Orient Paper’s Chairman and Chief Executive Officer; and Ms. Hao, the company’s Chief Financial Officer. Remarks from both Mr. Liu and Ms. Hao will be delivered in English by interpreters. Orient Paper announced the second quarter 2015 financial results via press release yesterday, which can be found on our company’s website at orientpaperinc.com. First, Mr. Liu will brief you on the company’s key operational highlights and corporate developments over the second quarter 2015 and then Ms. Hao will review the company’s financial results. After that, we will take questions. Before we begin, I would like to draw your attention to our Safe Harbor statement. This announcement contains 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 its announcement are forward-looking statements, including, but not limited to anticipated revenues from the corrugating medium 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 in 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 to changes in its expectation, except as maybe 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 the actual results may differ materially from the anticipated results. There is a presentation document featuring management’s prepared remarks, and it’s now available for download 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 U.S. dollars and all comparisons refer to 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 Victor Kuo from ICR, the company’s Investor Relations firm. Please proceed.

Hello. I am Victor Kuo of ICR. I will deliver the English version of Mr. Liu’s prepared comments. Good morning and thank you for attending our earnings call. We are pleased to report our second quarter results as revenue increased 9.1% and net income increased 56.5% from the prior year period. Growth was largely driven by Light-Weight CMP revenue which increased 227% year-over-year as we continued to accelerate production. Gross margin also improved 9.2 percentage points to 25.4% as average selling prices for both of our CMP products and our offset printing paper increased from the prior year period. Additionally, material costs also declined compared to the prior year period further expanding our margins. During the quarter, we focused on the execution of several growth initiatives and have positioned ourselves to capture greater market share in China’s consolidating paper market. As previously announced, we completed the installation of our tissue paper packaging equipment in mid-April and commenced commercial production of our own brand of tissue paper products in early June. We also made significant progress on the relocation of our digital photo paper production lines during the quarter, which are now back online and producing digital photo paper commercially. We are optimistic about our growth prospects in the second half of the year and beyond as our digital photo paper products will once again contribute to revenue. Our new tissue paper products are now on the market, and we continue to benefit from market acceptance of our Light-Weight CMP products. Now, I will turn the call over to Ms. Hao, who will review our financial results.

Hello. I am Rene Jiang from ICR, the company’s Investor Relations firm. I will deliver the English version of Ms. Hao’s prepared remarks. Thank you everyone for being on the call. Before I begin, please remember that all figures are in U.S. dollars and all comparisons are year-over-year unless stated otherwise. Also, I will occasionally refer to specific production lines associated with various products. I will make clear to which products I am referring to. To reference those, the numbering system for our production lines is provided in our earnings press release and on Slide 18 of the earnings call presentation. Now, let’s look at our financial performance for the second quarter of 2015. Please turn to Slide 7. Total revenue was up 9.1% to 41.3 million as a result of increased sales from our Light-Weight CMP products. Turning to Slide 8. The CMP segment generated sales of $30.8 million, representing 74.6% of total revenues. $25.8 million of revenue was from our regular CMP products and $5 million was from Light-Weight CMP. Volume was up 13.1% to 81,436 tonnes. 13,000 of which was Light-Weight CMP. Average selling price or ASP for regular CMP increased 5.3% to $377 per tonne. ASP for Light-Weight CMP increased 6.1% to $384 per tonne. Turning to Slide 9. Our Offset Printing Paper segment generated sales of $10.5 million, representing 25.3% of our total revenue. Volume was 14,982 tonnes, down 6.4% due to a temporary interruption in production resulting from maintenance performed on the PM3 production line in April 2015. ASP was $698 per tonne, up 1.6% from the prior year period. No Digital Photo Paper was produced during this quarter. As previously announced, we have completed the relocation and resumed commercial production in the beginning of August. Slide 10 summarizes the progression of change in our revenue mix. Gross profit was up 71.3% to $10.5 million while gross margin was 25.4%, up from 16.2% in the prior year period. The improvement in margin was due to increased sales of our Light-Weight CMP product which is a higher margin product compared to our regular CMP product that also has higher ASP. Income from operations was $8.6 million and operating margin was 21%, up from 13.6% a year ago. Net income was $5.6 million and net income margin was 13.5%, up from 9.4% in the prior year period. Basic and diluted earnings per share were $0.28, compared to $0.19 for the corresponding period of 2014. Moving to Slide 11. Let’s look at the balance sheet and the liquidity as of June 30, 2015. Cash and equivalents were $2.2 million, compared to $3.9 million at the end of 2014. The decrease in cash was mainly from cash used in investing activities and financing activities which was $5.9 million and $2.2 million respectively. This was partially offset by $6.4 million in cash provided by operating activities. Short-term debt was $15.7 million, including note payable of $6.5 million, while current capital lease obligations were $12.7 million. Long-term debt was $15.5 million, and non-current capital lease obligations were nil. That represents 19% of our total capitalization, which was an improvement from 23% last quarter. We believe this is a very manageable and is within a normal range for the domestic paper industry. Let me now turn the call back over to Mr. Liu, who will update you on progress we are making in our key capital projects and offer some comments on certain industry conditions that could impact our results in the remainder of 2015.

Thank you. Slide 13 has our most recent photos related to the Tissue Paper Expansion Project. In April, we completed the installation of the tissue paper packaging equipment, which functions independently from the base tissue paper production line and launch commercial production of our own brand of tissue paper products using base tissue paper sourced from third parties. As I previously mentioned, we are progressing with the installation of two base tissue paper production lines, PM8 and PM9, using which we will be able to produce 15,000 tonnes annually. On Slide 14, you will find an update on the relocation of our digital photo paper production lines. Due to changes in the Country Government zoning policy, we were required to move these production lines to a new location right across the street from our Xushui Paper Mill, which we called as Xushui Mill Annex. During the second quarter, we made considerable progress on the installation of these two lines and we were able to complete the relocation and resume commercial production in the beginning of August. Finally, allow me to offer some comments on general industry conditions that could impact our results in the next several months. We expect the Chinese government to continue pushing for industry efficiency and environmental improvement, which we believe is favorable for Orient Paper given our focus on maintaining and implementing clean and efficient processes. The Ministry of the Industry and Information Technology of China is expected to continue reinforcing the mandatory closure outdated paper manufacturing capacity in China, which we expect to help keep ASPs for CMP and other packaging paper relatively stable. Looking at raw material costs, we mentioned on our call last quarter that in January of 2015, Chinese customs repelled the Green Fence policy, which eliminated the importation of solid waste contaminated shipments into China. As a result, Old Corrugated Cardboard prices fell in the first half. Moving into second half of the year, we expect to see relative stability in material costs. We are now ready for the question-and-answer session. Operator?

Thank you. Ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Tim Clarkson from Van Clemens. Please ask the question.

Yes, first of all I just want to complement the management, Chairman Liu on outstanding job getting the company moving again and very courageous and disciplined and patient investment in new equipment. My first question is at what point with the fact that now you are much more profitable, do you think you expect to have a more normalized current ratio, I’m guessing that it would be in the next two to four quarters that you would have a positive current ratio again?

Hey Tim, thank you for your question. This is Jiang from ICR. Now let me translate for Chairman and now we’ll get back to the answers.

Okay.

Hi Tim, indicated by Chairman Liu, the company thinks now the profitable section also already seen some the second quarter of 2015 should be the Corrugated Medium Paper as well as the Offset Printing Paper. Also our Commercial Paper segment, the total should be around 200 categories and now Orient Paper only has like over 100 categories and now we are seeing in the third quarter we should be a little bit more profitable and we can realize the full potential most likely in the fourth quarter of this year.

Okay. One other question, but is there good demand for this new tissue paper line?

Just wanted to clarify, you were asking the demand for the news paper?

Tissue paper?

The tissue paper. Okay, thank you. In terms of the demanding for our tissue paper, now we are establishing markets in several provinces including Hebei, Beijing, Tianjin, Shandong, and Shanxi and now we are trying to use marketing approaches to do penetration and we are expecting promising future in a near-term.

Great. One other comment I just like to say that the Orient Paper right now is trading at above two to three times earnings and the average American Packaging company trades at 15 times earnings and Orient Paper has higher margins and is growing faster than the average American Packaging company. So the stock is very undervalued and I would like to see the company do what it can promote its share price.

Hi, Tim.

Yes, we are now doing non-deal roadshows and we will most likely do more Investor Presentations to have more people understand our products and our business model in order to boost the stock price in the future.

Thank you. I am done.

Thank you.

Thank you. Your next question comes from the line of [John Arrow]. Please ask the question.

Yes, good morning. It looks like the company’s cash position has been dangerously low. What are your plans for capital raise and when do you plan on raising the next round of capital?

The capital rise for the next year or…?

Yes, I mean you are down to $2 million it looks like you need to raise capital?

Yes, hello, thank you for your question. The company now has no plans in terms of capital raise. By the end of this June, the company has pretty much repaid all the loans outstanding, and in July the company will request a new loan in order to improve the operations, and so far we don’t have other funding and financing plans.

Okay thank you.

Thank you.

Your next question comes from the line of Joe Furst from Furst Associates. Please ask the question.

Hi, longer on into the balance sheet. It shows that you have $15 million of current portion of long-term debt that would come due this year and $6 million bank loans and $6 million notes payable. How are you going to make those payments or how are you going to extend the new loans, can you explain how are you going to solve that problem? Thank you.

Hi Joe. Thank you for the question. The company may use the current cash flow to repay partial debt and also please note that the company is in the process of constructing and developing new products including the commercial paper. So the company may repay the debt over the long-term from time-to-time, but now since the company is making good efforts in its construction and building more categories of the paper that we are expecting moderate input in the near future. And we may have some financing plans in the future, but now the plans are not finalized yet. Since the stock price at the current market is pretty low and once the market condition is coming better we might have other projects in terms of repaying the debt.

Okay. Thank you. Basically you are going to refinance it using different terms in commercial paper and pay it off through cash flow for the present time, it’s correct? Thank you.

Joe, thank you.

[Operator Instructions] Your next question comes from the line of [John Arrow]. Please ask the question.

Yes, just for the last caller you said that you didn’t have to raise capital as things would be paid through cash flow, but then I heard you say that based upon the stock price, once it was higher it sounded to me like you were going to raise capital to take care of some of your debts. So which is it? You just gave confusing answers.

Hi Arrow, thank you for the question. Yes, last quarter we mentioned that we may use different approaches to raise capital and now we mentioned that stock price because now the stock price is very low, our stock is undervalued as well as the market conditions becomes better and our stock price go higher we might sell out some of our shares outstanding to – so we’re able to payback some of the debt.

Okay. So you are planning a capital raise using stock that’s what I thought. Thank you.

Sure. End of Q&A

[Operator Instructions] There is no further question at this time. I’d like to turn the call back to Mr. Liu for closing remarks.

Thank you, operator. And thank you all for participating in the call today. In closing we would like to reiterate our optimism for the second half of 2015 and beyond. We will continue to focus on the installation of our base tissue paper production lines which we believe will help us further cut-costs and expand our new product operations. If you have any additional questions please contact us. We strive to answer all investor inquiries and invite you to address your questions to our Investor Relations contact at ir@orientpaperinc.com. This concludes our call today and we thank you all for listening in. Good-bye.