China Stocks: China Fire & Security Group
The 2008 Summer Olympics focused attention on China like no time in recent history. The high-tech opening and closing ceremonies gave the world a glimpse of how far the Middle Kingdom has come.
There are still many areas, though, in which the Chinese lag behind. As China has grown more prosperous and attracted Western investment, the Chinese government has made a significant push to enact a body of laws to bring China up to snuff on regulatory matters and match the quality and security standards of the United States and the European Union. In addition to passing legislation in the areas of financial transparency, intellectual property and labor issues, China has made significant strides in beefing up its industrial safety image.
One area that has received attention is fire codes. Last year, officials passed a new set of national fire codes that prompted Chinese companies to upgrade operations and fully comply with the new standards. According to experts, few are in compliance (three-quarters of iron and steel companies, for example, are still working to meet the new regulations).
An enterprise at the center of Chinese industry's efforts to catch up to the developed world is China Fire & Security Group, Inc. (Nasdaq:CFSG), a leading industrial fire protection product and solution provider. Based in Beijing, Chinese Fire is engaged primarily in the design, manufacture, sales and maintenance of a portfolio of fire, smoke and heat detectors and sensors, controllers, and extinguishers. Using its strong national direct sales force, the company has built a solid client base that includes major players in the iron and steel, petrochemical and power industries.
In June, the company inked deals with Wuhan Iron and Steel Group, valued at around $8.3 million, for two independent fire protection projects. The first contract, worth about $4.1 million, will see China Fire install automated fire protection systems in the cable tunnel and underground oil tank for the group's plant in Hubei Province. The second project is a $4.2 million contract to provide fire protection systems for the production plant of Echeng Iron and Steel Company, a Wuhan subsidiary. Both projects are scheduled to be completed by the end of this year.
Last month china Fire signed a new total solution contract with Xinyu Iron and Steel Co., Ltd., one of the country's largest state-owned enterprises, valued at approximately $4.7 million. Under the terms of the agreement, China fire will serve as a total fire protection solution provider for the company's the Phase III expansion. The project is expected to be completed early next year.
China Fire reported second-quarter income of $6.7 million, or $0.24 per share, for the three months ended June 30, a 57% increase over the year-ago quarter. Revenue rose 44% to $16.7 million. Management said gross margins jumped to 61.2% from 54.6%, citing contracts with an unnamed iron and steel company and improved sales of proprietary products.
After the earnings release, Roth Capital Partners analyst John Ma noted that China Fire's growth momentum is supported by a "positive industry outlook" and "solid fundamentals," adding that its shares appear to be undervalued compared with its peers. Susquehanna Financial Group maintains a "positive" rating and a $16 price target.
Shares closed at $11.27 on Wednesday, with a 52-week trading range between $3.55 and $18.10.
There are still many areas, though, in which the Chinese lag behind. As China has grown more prosperous and attracted Western investment, the Chinese government has made a significant push to enact a body of laws to bring China up to snuff on regulatory matters and match the quality and security standards of the United States and the European Union. In addition to passing legislation in the areas of financial transparency, intellectual property and labor issues, China has made significant strides in beefing up its industrial safety image.
One area that has received attention is fire codes. Last year, officials passed a new set of national fire codes that prompted Chinese companies to upgrade operations and fully comply with the new standards. According to experts, few are in compliance (three-quarters of iron and steel companies, for example, are still working to meet the new regulations).
An enterprise at the center of Chinese industry's efforts to catch up to the developed world is China Fire & Security Group, Inc. (Nasdaq:CFSG), a leading industrial fire protection product and solution provider. Based in Beijing, Chinese Fire is engaged primarily in the design, manufacture, sales and maintenance of a portfolio of fire, smoke and heat detectors and sensors, controllers, and extinguishers. Using its strong national direct sales force, the company has built a solid client base that includes major players in the iron and steel, petrochemical and power industries.
In June, the company inked deals with Wuhan Iron and Steel Group, valued at around $8.3 million, for two independent fire protection projects. The first contract, worth about $4.1 million, will see China Fire install automated fire protection systems in the cable tunnel and underground oil tank for the group's plant in Hubei Province. The second project is a $4.2 million contract to provide fire protection systems for the production plant of Echeng Iron and Steel Company, a Wuhan subsidiary. Both projects are scheduled to be completed by the end of this year.
Last month china Fire signed a new total solution contract with Xinyu Iron and Steel Co., Ltd., one of the country's largest state-owned enterprises, valued at approximately $4.7 million. Under the terms of the agreement, China fire will serve as a total fire protection solution provider for the company's the Phase III expansion. The project is expected to be completed early next year.
China Fire reported second-quarter income of $6.7 million, or $0.24 per share, for the three months ended June 30, a 57% increase over the year-ago quarter. Revenue rose 44% to $16.7 million. Management said gross margins jumped to 61.2% from 54.6%, citing contracts with an unnamed iron and steel company and improved sales of proprietary products.
After the earnings release, Roth Capital Partners analyst John Ma noted that China Fire's growth momentum is supported by a "positive industry outlook" and "solid fundamentals," adding that its shares appear to be undervalued compared with its peers. Susquehanna Financial Group maintains a "positive" rating and a $16 price target.
Shares closed at $11.27 on Wednesday, with a 52-week trading range between $3.55 and $18.10.
About the Author
Shannon Roxborough previously worked as a global risk analyst, and lived in China for nearly two years.
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