Zhenyong Liu - Chairman and CEO Jing Hao - CFO

Hello, ladies and gentlemen, and welcome to participating 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 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. 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 Web site at www.orientpaperinc.com. First, Mr. Liu will brief you on 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 and its announcements, 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 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 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 Web site 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 the year-over-year comparisons, unless otherwise stated. I’ll like to turn the call over to Mr. Liu. His comments will be delivered in English by Tony Tian from Weitian Investor Relations. Ms. Tian, please go ahead.

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 increasing sales volume across all major product categories that more than offset decrease in overall average selling prices. As highlight of the quarter, our revenue increased by 15.6% year-over-year to $37.5 million. While net income increased by 80% to $3 million. Our newly launched tissue paper product packaging business also generated $1.6 million in revenue, and almost five fold increase versus the same on last year. As for order trends, we started this year seeing stabilizing trend for our major products over the past few months, and expect this trend to carry over into the beginning of 2017. Now I will turn the call over to 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.

Thank you, Tony. And I thank everyone for being on the call. Next, on behalf of the management team, I will summarize some key financial results for the third quarter of 2016. Also, I’ll occasionally refer to specific production lines associated with various projects. I will make clear to which products I am referring to. For reference though, the numbers presented 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 seven. For the third quarter of 2016, total revenue increased to 15.6% to $37.5 million, due to the increase in sales for CMP and tissue paper products. Turning to slide number eight, for the third quarter 2016, the CMP segment, including both regular CMP and light-weight 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 light-weight 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 light-weight CMP. Average selling price of ASPs for regular CMP decreased by 9.5% to $325 per tonne; while ASP for light-weight CMP decreased 9.3% to $322 per tonne. Turning to slide number nine, 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 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 20156, 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 point from the last year. For the third quarter 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 plant 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% for the same period of last year. For the third quarter of 2016, net income was $3 million or $0.14 per diluted shares. This compares to net income of $1.7 million, or $0.08 per diluted share for the same period last year. For the third quarter of 2016, EBITDA increased by $0.7 million to $85.5 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 seven, 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 eight, for the nine months ended September 30, 2016, the CMP segment, including both regular CMP and light-weight CMP, generated revenue of $71.1 million, representing 68.8% of total revenue. $69.6 million of revenue was from our regular CMP products, and $11.5 million was from light-weight CMP. Volume for CMP segments increased by 10.1% to 217,522 tonnes of which 83,044 tonnes was regular CMP and 34,478 tonnes was light-weight CMP. ASP for regular CMP decreased by 11.7% to $326 per tonne, while ASP for light-weight CMP also decreased by 11.7% to $322 per tonne. Turning to slide number nine, for the nine months ended September 30, 2016, our Offset Printing Paper segment generated revenue of $26.9 million, representing 26% of total revenue. We shipped 41,440 tonnes Offset Printing Paper for the nine month ended September 30, 2016, increased 7.5% from the same period of last year. ASP for Offset Printing Paper decreased slightly by 5.7% to [indiscernible]. For the nine months ended September 30, 2016, 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, 0.6% of total revenue. In June 2016, we shutdown the production due to the market contraction, and we expect that our Digital Photo Paper products will remain sustained in the near future. For the nine months ended September 30, 2016, we shipped 374 tonnes of Digital Photo Paper, and ASP for 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 million from $21.9 million last year. And gross margin of 17.4% decreased by 4.4% from 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 the increase in the depreciation expenses for our temporarily idle products plant and equipment, and our new tissue paper plant to Wei County. And second, 133,915 shares of common stock granted under compensatory incentive plans 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 over the same period of last year. Operating margin was 8% 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 $0.30 per diluted share for the nine months ended September 30, 2016. This compares to net income of $9.4 million or $0.46 per diluted share for the same period of 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 had cash and cash equivalents, short term debt, including notes payable and short term debt notes, current obligation and capital lease, long-term debt, including those from credit union and from the related party and long-term obligations and the capital lease of $5.6 million, $15.2 million, $9.30 million, $12.5 million respectively. This compared to $2.6 million, $37.7 million, $6.9 million, $19 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, 2016 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 month 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 emails 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-bye. End of Q&A: