Orient Paper Pops After Results Gladden Bulls

NEW YORK (TheStreet) -- Orient Paper (ONP) shares were spiking nearly 20% Wednesday after the tiny Chinese paper producer issued fourth-quarter results that encouraged bullish investors to bid up the name.

Fourth-quarter numbers as reported by the company showed profit growth of nearly 70% year-over-year and revenue expansion of 15.7%. That translates to $5.3 million, or 29 cents a share, on the bottom line for the period ended December 31, and $36.3 million on the top.

Orient Paper shares were trading late morning Wednesday at $5.64, up about 18% on heavy volume, bucking another downdraft in the broader equities markets, with the Dow Jones Industrial Average giving up more than 100 points.

>>China RTO Stocks Slide After China Media Bombshell

Orient Paper was a battleground stock for much of last year, after a controversial short-side research shop, Muddy Waters, accused the company of out-and-out fraud and theft. But Orient Paper appeared to have won the contest over its doubters when, last fall, the audit committee of its board determined, with the help of $200,000 worth of consulting from Deloitte Financial Advisory Services, that its accounting was clean. (Orient Paper's auditor is the Hong Kong affiliate of BDO Ltd., not Deloitte.)

Still, Orient Paper's stock never recovered from the charges. The stock traded as high as $11.75 in April last year. Including Wednesday's gains, the stock is down 11% since the start of 2011.

Orient Paper's equity is now mostly in the hands of retail investors. Institutions hold only about 15% of the company's float, according to Computershare, a stock transfer agent and data provider.

Investigating Chinese Reverse Mergers

The prolonged war of words between longs and shorts, which played out on Internet chat rooms and blogs, went to the heart of a broader controversy surrounding small Chinese companies that have come public in the U.S. through a procedure known as a reverse merger, sometimes called a reverse takeover, or RTO. (Orient Paper first listed stock on this side of the Pacific in a 2007 RTO. It was uplisted to the American Stock Exchange in 2009.)

Allegations and revelations of fraud among this group of companies -- hundreds now have stocks listed on U.S. exchanges -- have sparked regulatory scrutiny, including an ongoing probe by the Securities and Exchange Commission.

The latest blowup occurred just this week, when an advertising outfit called China MediaExpress ( CCME) -- another company attacked by Muddy Waters, among others -- appeared to vindicate the bears when it announced the resignation of its CFO and auditor: the Chinese affiliate of Deloitte & Touche.

The accounting firm said it had found enough irregularities in China Media's books that an investigation is necessary. China Media said it has started one.

-- Written by Scott Eden in New York





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