Financials

First Quarter Financial Statement And Dividend Announcement 2008

Profit and Loss

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Review

Group Revenue

Group revenue improved by 8.7% from RMB201.3 million for the 3 months ended 31 March 2007 ("1QFY07") to RMB218.8 million for the 3 months ended 31 March 2008 ("1QFY08"). The improvement is reflected across our paper product segments

The higher turnover in 1QFY08 is attributable to increased average selling price for the quarter as compared with 1QFY07. Revenue from printing paper, witnessed a growth of approximately 8.7% from RMB178.3 million in 1QFY07 to RMB193.8 million in 1QFY08. Newsprint paper saw an increase of 7.5% from RMB10.8 million in 1QFY07 to RMB11.6 million in 1QFY08 while the revenue of light-weight packing paper rose 10.8% from RMB3.7 million in 1QFY07 to RMB4.1 million 1QFY08.

Gross profit

Gross profit outpaced turnover growth as it increased 11.6% from RMB49.9 million in 1QFY07 to RMB55.8 million in 1QFY08. This was attributable to the stability in wood pulp prices during the quarter under review. With the improvement in gross profit, gross profit margin edged up by 0.7% from 24.8% in 1QFY07 to 25.5% in 1QFY08.

Operating Expenses

The Group's selling and distribution costs remained fairly stable at RMB11.2 million for 1QFY08 as compared to RMB11.0 million in 1QFY07. Administrative expenses increased 24.3% from RMB3.5 million in 1QFY07 to RMB4.4 million in 1QFY08.

Profit Before Tax and Net Profit

In line with our gross profit growth, profit before tax for the Group improved 14.1% from RMB35.9 million in 1QFY07 to RMB41.0 million in 1QFY08. Net profit increased 14.1% from RMB29.8 million in 1QFY07 to RMB34.0 million in 1QFY08.

Net profit margin improved from 14.8% in 1QFY07 to 15.5% in 1QFY08.

Cash flow

As at 31 March 2008, the Group registered net cash generated from operating activities of RMB44.2 million. As there were no investing and financing activities for the quarter under review, hence cash and cash equivalent stood at RMB316.6 million.

Balance sheet review

As at 31 March 2008, inventories rose to RMB69.5 million from RMB67.3 million as at 31 March 2008. This was in anticipation of increased production as the Group continues to take steps to increase the pace of production. Accounts receivable remained stable at RMB100.0 million as at 31 March 2008, compared to RMB98.6 million as at 31 December 2007. Accounts payable increased slightly to RMB29.1 million as at 31 March 2008 from RMB26.7 million as at 31 December 2007.

Commentary

The increase in turnover for 1QFY08 was due to increase in the average selling price. The Directors continue to be optimistic about the prospects for paper products in the PRC. It is expected that the strong demand will continue with rising affluence.

Currently, we are working at achieving the optimised utilisation rate for our production lines. We are encouraged by the progress since the second half of FY2007. In addition, we are also planning to increase our maximum production output to handle the strong demand ahead.

With regards to cost of sales, the prices of wood pulp have remained fairly stable for the quarter. This has a positive effect on our margins. The Group expects the prices of wood pulp to continue remaining stable in the near future.