Future Bright for this Chinese Winner

Last year, I wrote about China Fire & Security Group, Inc. (NASDAQ/CFSG) in this column. It’s fair to say that this fast-growing micro-cap is a kind of consolidator in China’s fragmented market for fire and safety products. Like many Chinese companies, China Fire & Security is growing both organically and by acquisition.

This company operates through its wholly owned subsidiaries, Sureland Industrial Fire Safety Limited and Sureland Industrial Fire Equipment (Beijing) Limited. These companies are engaged primarily in the design, development and manufacture of a variety of fire safety products for the industrial market in China.

Headquartered in Beijing, with over 30 sales and project offices throughout China, the company’s Sureland division markets its industrial fire safety products primarily to large companies in the iron, steel, power and petrochemical industries in China. The company’s business plan is to expand its customer base to the transportation, wine and tobacco, shipping, nuclear energy, and government markets.

China Fire & Security just reported that its revenues increased to a record fourteen and a half million dollars in the first quarter of 2008, representing a gain of some 55% from revenues of $9.5 million in the first quarter of 2007.

GAAP net income was approximately $4.7 million for the first quarter of 2008, up slightly from net income of $4.1 million net income for the same period in 2007.

Based on its current order backlog, China Fire & Security expects that it will exceed its 2008 full-year guidance of more than sixty-six and a half million dollars in total revenues and just over twenty-two million dollars in net income.

If the company meets or exceeds this guidance, clearly twenty-two million dollars in earnings is exceptional profitability on sixty-seven million dollars in revenues.

I always get enthusiastic about companies like China Fire & Security. The company is just about to achieve the right critical mass where it can really accelerate in contract wins. If you were a large customer, say for example a steel plant, you would want your fire and security system to be installed by an established company with a proven track record. China Fire & Security is well on its way to becoming large enough to go for the real big customers in China.

All this opportunity in one reasonably priced package! I think this company has a bright future over the next 10 years.