China Fire & Security (NASDAQ:CFSG)

Fourth Quarter Highlights:

• For the fourth quarter of 2010, the Company's revenue was $11.4 million, as compared to $16.9 million during the same period in 2009
• Operating income for the fourth quarter of 2010 was negative $2.3 million, compared to $3.3 million for the same period last year. 
• Net income was negative $2.1 million for the fourth quarter of 2010, as compared to $2.9 million for the same period of 2009. As a result, GAAP fully diluted EPS was negative $0.08 in the fourth quarter of 2010, versus $0.10 in the fourth quarter of the prior year.

Backlog

As of December 31, 2010, the Company's total backlog was $151.3 million.  Among that backlog, the iron and steel industry was still the major vertical, contributing approximately 51.8%, while traditional power generation and nuclear power contributed approximately 4.7% and 18.7% of current backlog, respectively. International market contributed to 14.6% while the petrochemical and other verticals together represented the remaining 10.2%. 

Mr. Brian Lin, Chief Executive Officer of China Fire, commented, "In spite of lower than expected revenue in the fourth quarter and the full year of 2010, I am satisfied with our business momentum and with the groundwork that we laid out over the past year. In 2010, we have signed over $170 million worth of new contracts – a new record in company's history. In addition to our continuous success in iron and steel industry, we have made significant progress in nuclear power sector, transportation sector and international markets. We have demonstrated our capabilities in penetrating into new industrial verticals by leveraging our strong brand name, excellent technical expertise and project management track records. However, the nature of our business as a total solution provider may occasionally depend on the profitability and cash position of our major customers, thereby impacting our revenue and consequently our quarterly and annual financial results. With strong visibility from the $151 million backlog and our more diversified customer base, China Fire's management team continues to be excited with our growth prospects in our core iron and steel market and other industrial sectors."

Third quarter 2010 Results

• Revenues were relatively unchanged at $24.8 million, as compared to the same period in 2009.

• Gross margin for the third quarter of 2010 was 50.5%, compared to a gross margin of 56.4% for the third quarter of 2009. The decrease in the Company's gross margin was mainly due to a change in the contract mix during the period.

• The Company's operating income for the third quarter of 2010 was $6.8 million, compared to $8.5 million for the same period last year.

• GAAP net income for the third quarter of 2010 was $5.9 million, compared to $7.6 million for the same period of 2009, representing an annual decrease of 21.4%. 

• Fully diluted EPS was $0.20 in the third quarter of 2010, versus $0.27 in the third quarter of 2009.

Mr. Brian Lin, chief executive officer of China Fire, commented, "In recent months, the iron & steel industry witnessed lower steel prices and, at the same time, a significant increase in production costs. As such, our core customers – China's mid-to-large iron & steel manufacturers – have experienced a squeeze in profits and cash flows. In light of this, we have also adopted cautious measures to preserve our cash by slowing some of our ongoing projects in order to control expenditures."

Mr. Gangjin Li, chairman and chief executive officer of China Fire, commented, "In spite of lower than expected revenue in the fourth quarter of 2009, I am satisfied with our business momentum and with the groundwork that we laid out over the past year. Due to the larger than expected size and scope of the Wuhan Iron and Steel retrofitting project, we had a delay in the signing of the contract, from which we had projected a $10 million revenue contribution during the fourth quarter of 2009. The nature of our business as a total solution provider may occasionally result in unexpected changes in the recognition of certain large projects or contracts, thereby impacting our quarterly results. At this point, however, we have successfully signed this record-high contract, as announced earlier this year, and I am more enthusiastic than ever about China Fire's growth momentum in 2010."

"For the full year 2010, the Company reaffirms its revenues will grow between 66% and 78% to a range of $135 million to $145 million. Net income is estimated to grow 89% to 105% to a range of $47 million to $49 million, or $1.65 to $1.70 per diluted share."

Source: PR Newswire (March 16, 2010)

Mr. Brian Lin, Chief Executive Office of China Fire commented, 'I am very pleased with our second quarter results. The Chinese government's stimulus plan and the new amendment to the Fire Protection Law, which requires all fire protection products to pass compulsory product certification, has improved demand for our high quality systems, and increased bidding activities from our Tier-1 customers. With our greater and deeper expertise, we significantly improved our efficiency in the execution of large iron and steel projects and reached a new record high gross margin in the second quarter. Our backlog remains strong at $85 million at the end of June 2009, which provides extra confidence to our existing revenue forecast.'

China Fire & Security Group has Raised its FY09 EPS Forecast

Full Year Fiscal 2009 Guidance Ending December

Source: PR Newswire (August 10, 2009)

'Supported by our strong new contract wins and record backlog, we remain confident about the business and the growth of the fire protection industry in China. In our view, the Chinese government's stimulus plan has shown early signs of success, as bidding activities at our Tier-1 customers continue to trend up, and we continue to benefit from the accelerated infrastructure upgrades across our targeted verticals. The recent sharp rise in CLAS's purchasing managers' index for China is another indicator that manufacturing in China is heading towards reacceleration. We believe we are well positioned to capture revenue opportunities arising from improving market conditions.

China Fire & Security Group has reaffirmed its previous guidance.

Full Year Fiscal 2009 Guidance Ending December

Source: PR Newswire (May 11, 2009)

Guidance Report: 

 Despite general concerns of challenging times for the iron and steel industry, we are actually witnessing strong demand for our total solutions in this vertical, as some of our Tier-1 customers are receiving more government-subsidized funding, pickup in demand from the end of last year, and extra government support for consolidation. As China continues to invest in upgrading the country's infrastructure, we are seeing real spending initiated by the government in the iron and steel, nuclear, power, petrochemical, and transportation sectors. We believe that most of these infrastructure investments will directly benefit China Fire, as they all require fire protection products and services. As such, we continue to be excited with the growth prospects in our core iron and steel market, and we continue to command firm pricing for our total solutions. We also are excited with our success in winning sizeable contracts in the nuclear, power, petrochemical, and transportation verticals, as well as notable contract wins in the international market. We are delighted with our strong financial position, which includes a growing cash position, no debt, and healthy cash flows. We believe that we are in an excellent position to capture new revenue opportunities and benefit from strategic consolidation opportunities."

Full Year Fiscal 2009 Guidance Ending December

Source: PR Newswire (March 11, 2009)