OVER the last four trading days, Ornapaper saw its share price increase by 6.9% to RM1.09 after a sharp build-up in volume, from just 80,800 shares to 1.22 million shares yesterday.

Based in Melaka, Ornapaper is a manufacturer of corrugated cartons and boards. It has an annual production capacity of 84,000 metric tonnes of corrugated cartons and boards, which yields the company annual revenues of just under RM250 million in 2013. 

Sai Chin Hock, a major shareholder of Ornapaper with a 31.22% stake, is also a co-founder and owner of Perfect Food Manufacturing Sdn Bhd (PFM), most famous for its Julie’s branded biscuits. Ornapaper also supplies carton boxes to PFM, with sales of RM4.1 million in 9M2014.

Ornapaper has fairly good fundamentals. From 2010 to 2013, pre-tax profit grew every year, by a compounded annual growth rate (CAGR) of 15.4% to RM10.5 million on the back of 4.3% CAGR in sales to RM245.6 million. Meanwhile, book value rose by a CAGR of 6.4% to RM123.2 million during the same period. 

As at end-Sept 2014, net gearing stood at 33.3%, down from 52.1% in 2011. Net profit margin, though improving, is low at 3.6%. This partly contributes to its below average ROE, between 5.5% and 6.8%, from 2011 to 2013.

For 9M2014, sales and pre-tax profit increased by 17.2% and 50.8% to RM208.3 million and RM10.7 million, respectively, mainly due to strong demand and lower raw material costs.

The stock is trading at a low trailing 12-month P/E ratio of 8.0 times and a P/BV of 0.61 times, partly due to its low ROE. The company also has not been paying dividends since December 2009.

The Edge Research rates Ornapaper a Fundamental score of 1.0 out of 3.0 and a Valuation score of 2.4 out of 3.0.

This article first appeared in The Edge Financial Daily, on January 8, 2015.