Company info: it is the largest paper manufacturer in China with about 18% market share, purchased recovered paper in 1st world, then re-cycled & resells (what a green idea). They also have their own power plant and sea port to minimize cost.

Financial data: 06/07 Revenue up 24.5%, Profit up 57%, P/E 44, Goss margin up from 23.5% to 25.7%. It issued $0.4B ST debt last week.

Sector info: today, China is the 2nd largest paper producer and consumer in the world. The average growth in overall & special paper production btw 00 to 05 are 12.9% & 17.6%. As the estimate GDP will remain at 10% for the next 5 years, I expect the growth in paper will remain strong. Paper industry has high entrance boundary because of high initial investment and complex environmental rules. In 06-10, government planned to close down low quality paper factories by 2.1M, 2.3M, 1.1M and 0.5M tones paper to reduce COD (min. air pollution) by 0.5M tones. This regulation is in favorite to large paper factory like ND Paper. Paper industry’s selling price is market driven and paper manufacturers usually do not have a say on this and it will direct impact on its revenue.

Outlook: management has clear vision & direction: 1) to increase market shares from 18% to 35%, 2) reduce cost; 3) working towards producing advertisement paper with higher profit margin. Since China’s economic will remain strong in the coming 10 years, with a switch from industry based to consumer based economy, box paper (for export) and domestic advertise paper will continue be in high demand.

Risk: according to the note to F/S, it may issue more shares next year. Higher debt means more financial cost for the company and issue more shares means a reduction in return to existing shareholders. That’s the reason why profit up 57% while EPS only rise by 15%. To maintain such high growth, ND rise debt by 20% and rise equity by 52% (issue add’l shares on Apr 07).

Conclusion: target price $25.5 and current price $20.8. Good buy if growth in 2nd half of 07 for both revenue and profit excess 30%.