Now that RINO is on its deathbed following the Muddy Waters report that started it all, it is time to give the specialized research shop some kudos...And move on to their next (or technically previous) target - Orient Paper. With RINO likely to open just north of 0 if at all (and will do so on the Pink Sheets), investors are curious which other name brought to you courtesy of the NYSE overeagerness to float any garbage, is just minutes away from becoming the next Chinese fraud export du jour. We present ONP, or Orient Paper, which Muddy Waters has been even more bearish on (since late June), and has a target price of $<1.00 (in essence, barely a liquidation recovery). The research report begins boldly enough: "We are confident that ONP is a fraud. Its purpose is to raise and misappropriate tens of millions of dollars" and then goes on to prove its allegations. The stock was last trading at $5.88. The only question is how much lower can it go.
As a reminder, here is why the firm see over 90% of downside from current levels in ONP.
- Approximately $30 million has been misappropriated since October 2009.
- ONP overstated 2008 revenue by 27x.
- ONP overstated 2009 revenue by 40x.
- ONP’s claims about its top 10 customers support our fraud conclusion.
- ONP overvalues its assets by at least 10x.
- The value of ONP’s Production Lines is greatly overstated.
- ONP’s inventory is overstated by millions of dollars.
- ONP’s claim of inventory turnover of 32.5x and 16.8x in 2008 and 2009 (respectively) are without credibility when compared to those of China’s industry leaders, which range from 4.3x to 7.7x.
- ONP overstates its gross profit margin by hundreds of basis points.
To be sure, management has already had several rounds of back and forth with investors and with MW. However, the bottom line is that nobody has been convinced either way, and following the stunning success of MW with RINO, it may be time for a long hard look at the borrow in ONP stock.