On 23 April 2018, I wrote about how Muda Holdings has been benefiting from the strong carton box price and low raw material cost due to China's import ban on waste paper.

Ornapaper is another stock that has benefited from the positive development in the industry. Same as Muda, Ornapaper is also involved in manufacturing of carton boxes. Its manufacturing plants are all located in Malaysia. 

However, unlike Muda, instead of using recycled paper as raw material, Ornapaper uses pulp. Pulp price has been going up since early 2017. Fortunately, Ornapaper has been successful in passing the higher cost to its customers. During FY2017, the group reported a 93% jump in net profit from RM8.1 mil to RM15.6 mil. 

Note : Ornapaper's FY2016 and FY2017 net profit is almost all from operation. There are very little exceptional items.

Based on market cap of RM111 mil (being 75 mil shares x RM1.48) and FY2017 net profit of RM15.6 mil, Ornapaper is currently trading at historical PER of 7 times.

Concluding Remarks

Going forward, I believe Ornapaper can continue to pass on higher raw material cost to end users. As mentioned in my Muda article dated 23 April 2018, due to reduction of supply by China based manufacturers pursuant to waste import ban, demand for carton box currently outstrips supply. This gives carton box manufacturers strong bargaining power, allowing them to ask for favorable selling prices from their customers.

When come to carton box manufacturing, Muda is still my top choice as it will benefit from both strong carton box selling price as well as low raw material cost. However, I also find Ornapaper attractive due to its small market cap of only RM111 mil (vs. Muda's RM700 mil) and undemanding PER of 7 times. The company will be releasing its March 2018 quarterly in the next two to three weeks.