Due to delays in execution of a big contract. However, 2010 looks like it’s going to be a blow-out..
Because of the nature of the business, not too much importance should be given for quarterly results, which can fluctuate according to recognition of revenue from big orders.
For 2009, EPS are 0.86 per share, but guidance is 89%-105% higher, meaning somewhere around $1.65-$1.70 a share, which gives the company a p/e of less than 10. Having zero debt on it’s balance sheet makes this company a steel. The sell-off this morning is overdone.
Full Year 2009 Financial Results
– FY09 Revenue Increases 18% to $81.2 Million –
– FY09 Operating Income Increases 17% to $27.6 Million –
– Reaffirms FY10 Forecast of 66% – 78% Revenue Growth –
– Reaffirms FY10 Forecast of 89% – 105% Net Income Growth –
Press Release Source: China Fire & Security Group, Inc. On Tuesday March 16, 2010, 6:45 am EDT
BEIJING, March 16 /PRNewswire-Asia/ — China Fire & Security Group, Inc. (Nasdaq:CFSG – News) (“China Fire” or “the Company”), a leading total solution provider of industrial fire protection systems in China, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2009.
Full Year 2009 Results
Revenues for 2009 increased 17.5% to $81.2 million from $69.1 million for 2008, driven primarily by higher total solution and product sales. During 2009, the Company recognized revenues from 445 total solutions, product sales and maintenance services contracts, compared to 319 contracts in 2008. The iron and steel industry remains the Company’s largest vertical, having contributed 75% of the total revenues in 2009, followed by power generation at 16%, and petrochemical and other verticals at 9%.
Gross margin for 2009 was 58.0%, 80 basis points higher than the gross margin of 57.2% in 2008. The increase in the gross margin was primarily attributable to the Company’s successful execution of total solution contracts in the iron and steel industry during the year.
Operating income was $27.6 million for 2009, as compared to $23.6 million for 2008, an increase of $4.0 million, or 17.0%, driven by the strong revenue growth and higher gross margin in 2009. Operating margin in 2009 was 34.0%, compared to 34.1% in 2008, as total operating expenses increased to $19.5 million in 2009, from $15.9 million in 2008. The higher operating expenses were primarily due to increased marketing activities and the expansion into new markets, most notably the retrofitting market in the iron and steel industry.
Net income was $24.4 million for 2009, compared to $24.7 million for 2008, representing a slight decrease of $0.3 million, or 1.2%. This decrease in net income was mainly attributable to the significant increase in the Company’s effective income tax rate during this year, as the Company’s main operating subsidiary, Sureland Industrial Fire Safety, Ltd., began to pay income tax at a rate of 12.5% after the expiration of its tax exemption period in 2008. GAAP fully diluted EPS was $0.86 in 2009, compared to $0.88 in the prior year.
Fourth Quarter 2009 Results
For the fourth quarter of 2009, revenue decreased 19.4% year over year to $16.9 million, compared to $21.0 million for the same period in 2008. This decrease was mainly due to the delay in the signing and executing of the previously announced $92 million retrofitting contract with Wuhan Iron and Steel (Group) Corporation (“Wuhan Iron and Steel”).
Gross margin for the fourth quarter of 2009 was 48.8%, versus a gross margin of 54.3% for the same period of 2008. The decrease in gross margin during the fourth quarter 2009 was primarily due to the lower contribution from the more profitable iron and steel vertical in the total revenue mix. During the fourth quarter of 2009, the iron and steel vertical represented 53% of the total revenue, as compared to 74% in the same period of last year.
Operating income was $3.3 million, as compared to $6.2 million from the same period last year. Operating margin for the period was 19.4%, versus 29.5% a year ago, primarily due to the decrease in gross margin this quarter. Operating expenses were $5.0 million for the fourth quarter of 2009, compared to $5.2 million for the same period of 2008. The improvement in operating expenses during this quarter benefited from lower administrative expenses.
Net income was $2.9 million for the fourth quarter of 2009, as compared to $6.8 million for the same period of 2008. The decrease in net income was mainly due to the decrease in both revenue and gross margin during this quarter as well as the 12.5% income tax on our major operating subsidiary in China. As a result, GAAP fully diluted EPS was $0.10 in the fourth quarter of 2009, versus $0.24 in the fourth quarter of the prior year.
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.”
Liquidity and Capital Resources
As of December 31, 2009, the Company had working capital of $87.1 million and zero debt. Net cash provided by operating activities was $5.5 million in 2009, compared to $13.4 million in 2008. As a result, net cash increased $8.3 million to $35.0 million at the end of 2009, from $26.7 million at the end of 2008.
Financial Outlook for 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.
Mr. Li concluded, “We continue to be excited about the growth prospects in our core iron and steel market and customer base. We are particularly excited that the new retrofit market opportunities are essentially an extension of our core iron and steel business, as the projects require our same core products, core technical and core vertical expertise that have made China Fire the market leader with the number one brand in China. Furthermore, in addition to our core iron and steel vertical, we continue to pursue expansions into other verticals, including power generation, transportation, petrochemical, etc., as well as new international markets.”
The Company will hold a conference call to discuss the financial results at 8:00 a.m. ET today, March 16, 2010. The Company invites the participants to join the call by dialing +1-719-325-4763. To listen to the live webcast of the event, please go to http://www.chinafiresecurity.com and click on the Investor Relations section where conference calls are posted. Please go to the website 15 minutes early to download and install any necessary audio software.
A replay of the call will be available from March 16, 2010 to March 23, 2010. Listeners may access the replay by dialing +1-719-457-0820, passcode: 8104346.
About China Fire & Security Group, Inc.
China Fire & Security Group, Inc. (NASDAQ:CFSG – News), through its wholly owned subsidiary, Sureland Industrial Fire Safety Limited (“Sureland”), is a leading total solution provider of industrial fire protection systems in China. Leveraging on its proprietary technologies, China Fire is engaged primarily in the design, manufacture, sales and maintenance services of a broad product portfolio including detectors, controllers, and fire extinguishers. Via its nationwide direct sales force, China Fire has built a solid client base including major companies in iron and steel, power, petrochemical and transportation industries throughout China. China Fire has a seasoned management team with strong focus on standards and technologies. Currently, China Fire has a comprehensive portfolio of patents covering fire detection, system control and fire extinguishing technologies. Founded in 1995, China Fire is headquartered in Beijing with about 430 employees in more than 30 sales and project offices throughout China. For more information about the Company, please go to http://www.chinafiresecurity.com .
Cautionary Statement Regarding Forward Looking Information
This presentation may contain forward-looking information about China Fire & Security Group, Inc. and its wholly owned subsidiary Sureland which are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “project,” “plan,” “seek,” “intend,” or “anticipate” or the negative thereof or comparable terminology, and include discussions of strategy, statements about industry trends and China Fire & Security Groups’ future performance, operations and products. This and other “Risk Factors” are contained in China Fire & Security Groups’ public filings with the SEC.
CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND 2008
December 31, December 31,
Cash and cash equivalents $34,976,880 $26,655,333
Restricted cash 1,837,134 5,377,933
Notes receivable 4,274,268 3,670,259
Accounts receivable, net of
allowance for doubtful accounts of
$6,539,787 and $4,370,362 as of
December 31, 2009 and
2008, respectively 30,989,569 25,826,343
Receivables from related party 551,792 466,223
Other receivables 368,679 419,419
Refundable bidding and system
contracting project deposits 1,774,330 1,112,840
Inventories 5,360,520 6,538,938
Costs and estimated earnings in
excess of billings 36,562,573 17,821,708
Employee advances 953,625 743,868
Prepayments and deferred expenses 3,397,358 2,816,976
Total current assets 121,046,728 91,449,840
PLANT AND EQUIPMENT, net 8,617,521 8,445,254
Restricted cash – non current 3,602,906 1,872,828
Accounts receivable – retentions 3,463,998 1,107,450
Deferred expenses – non current 116,045 —
Advances on building and equipment
purchases — 249,859
Investment in joint ventures 477,837 1,167,238
Intangible assets, net 1,041,156 1,116,449
Total other assets 8,701,942 5,513,824
Total assets $138,366,191 $105,408,918
LIABILITIES AND EQUITY
Accounts payable $6,903,961 $6,664,090
Accounts payable to related party 272,994 —
Customer deposits 2,182,790 6,102,026
Billings in excess of costs and
estimated earnings 1,429,999 4,237,528
Other payables 333,121 837,973
Accrued liabilities 13,841,300 6,785,409
Taxes payable 9,002,470 2,092,745
Total current liabilities 3,966,635 26,719,771
COMMITMENTS AND CONTINGENCIES
Common stock, $0.001 par value,
65,000,000 shares authorized,
27,595,541 and 27,586,593 shares
issued and outstanding as of
December 31, 2009 and 2008,
respectively 27,595 27,586
Additional paid-in-capital 20,601,138 19,357,409
Statutory reserves 7,147,795 7,148,827
Retained earnings 69,266,049 44,850,181
Accumulated other comprehensive
income 7,324,237 7,305,144
Total shareholders’ equity 104,366,814 78,689,147
Noncontrolling interest 32,742 —
Total equity 104,399,556 78,689,147
Total liabilities and equity $138,366,191 $105,408,918
CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
2009 2008 2007
projects $62,514,475 $57,101,984 $34,581,376
Products 15,718,815 9,673,922 10,592,683
Maintenance services 2,947,908 2,303,213 1,579,778
Total revenues 81,181,198 69,079,119 46,753,837
COST OF REVENUES
projects 26,769,508 25,805,086 16,158,844
Products 5,589,310 2,558,844 4,329,067
Maintenance services 1,769,104 1,217,316 602,943
Total cost of
revenues 34,127,922 29,581,246 21,090,854
GROSS PROFIT 47,053,276 39,497,873 25,662,983
Selling and marketing 8,908,697 6,434,887 3,907,067
administrative 8,154,801 6,680,992 5,661,356
amortization 773,907 712,269 535,751
Research and development 1,631,435 2,102,976 672,379
expenses 19,468,840 15,931,124 10,776,553
INCOME FROM OPERATIONS 27,584,436 23,566,749 14,886,430
OTHER INCOME (EXPENSES)
Other income 678,530 929,919 581,192
Other expenses (6,907) (127,620) (14,932)
Interest income 269,081 382,227 148,236
Change in fair value of
derivative instruments — — 1,205,791
Total other income
(expenses) 940,704 1,184,526 1,920,287
INCOME BEFORE PROVISION
FOR INCOME TAXES AND
NONCONTROLLING INTEREST 28,525,140 24,751,275 16,806,717
PROVISION FOR INCOME TAXES 4,165,548 47,423 5,081
NET INCOME BEFORE
NONCONTROLLING INTEREST 24,359,592 24,703,852 16,801,636
Less: Net loss attributable
to noncontrolling interest (55,244) — —
NET INCOME ATTRIBUTABLE TO
CONTROLLING INTEREST 24,414,836 24,703,852 16,801,636
OTHER COMPREHENSIVE INCOME
translation adjustment 19,093 3,737,027 2,502,595
COMPREHENSIVE INCOME $24,433,929 $28,440,879 $19,304,231
BASIC EARNINGS PER SHARE
Weighted average number
of shares 27,590,523 27,568,214 26,873,742
Earnings per share $0.88 $0.90 $0.63
DILUTED EARNINGS PER SHARE
Weighted average number
of shares 28,311,955 28,210,620 27,721,171
Earnings per share $0.86 $0.88 $0.61