Orient Paper, Inc. ONP
AMEX-listed Orient Paper is a Chinese reverse-merger fraud: tax records, shell-company suppliers, and customer interviews show revenues and profits are fabricated by orders of magnitude.
Thesis
Muddy Waters' follow-up note on Orient Paper (ONP) translates a 21st Century Business Herald investigation that independently corroborates the firm's June 28, 2010 fraud thesis. A tax bureau insider confirms that operating subsidiary HBOP's real profits and taxes are roughly one-quarter of what ONP discloses, with 2008 AIC revenue of just RMB 16.32m versus the RMB 452m booked at the listed level. Chairman Liu Zhen Yong's defense — that sales and taxes flow through a Beijing subsidiary he legally represents — collapses when no such entity appears in the Beijing AIC registry. Largest supplier Dongfang Trading, co-founded by Liu and former director Li Chen and sharing HBOP's plant address, is described by tax officials as a revenue-less shell. Industry experts also reject ONP's claimed corrugating-line capacity and 16.85x inventory turnover versus 4-8x at Nine Dragons and Chenming.
SCQA
Orient Paper is a Hebei-based paper manufacturer that reverse-merged onto the OTCBB in 2007 and uplisted to AMEX in December 2009, reporting US$102m of 2009 revenue through subsidiary HBOP.
Independent reporting by 21st Century Business Herald confirms tax-bureau records, shell-company suppliers, and customer interviews that contradict ONP's filings, with a Sina.com poll showing 90.7% of Chinese readers believe ONP is a fraud.
Investors should reject management's Beijing-subsidiary explanation, treat the Dongfang Trading related-party omission as auditor-fooling, and discount ONP's reported revenues, capacity, and customer concentration.
If the AIC tax-bureau numbers are real, ONP's revenue and profits are overstated by 27-40 times, implying the equity is worth a small fraction of the US$5.26 closing price as the stock continues to fall.
The three reasons
- 1
Tax bureau insider says AIC financials overstate HBOP profits and taxes by ~400%
- 2
Largest supplier Dongfang Trading is an undisclosed related-party shell co-founded by Chairman Liu
- 3
Top customer's own annual revenue is roughly equal to what ONP claims it sold them
Primary demands
- Investors should treat ONP as a fraud and avoid the stock
- Independent verification of HBOP's tax filings, customer revenues, and Dongfang Trading related-party transactions
KPIs cited
Pattern membership
Where this document fits across the library's 12 rhetorical / structural patterns.
Notable slides (3)
Notes
Follow-up to Muddy Waters' 28 June 2010 initial ONP short report; primarily a translation and amplification of a 21st Century Business Herald investigation that independently corroborated MW's claims. Pure prose memo with no charts, tables, or branding — Word-document aesthetic. Triangulates four lines of evidence (tax-bureau insider, supplier registry, customer interview, industry experts). No price target or quantified downside given; thesis is binary 'fraud, avoid'. Stake not disclosed beyond generic 'short position' boilerplate on page 8.