All Chinese, the land of growth.. This time a sector leading company in a solid growth industry with opportunities in other sectors and abroad, while having no debt and with a p/e of just 12..

China Fire & Securities Group (CFSG)

• We are engaged in the design, development, manufacturing and sale of fire protection products and services for large industrial consumers in China. We have developed a proprietary product line that addresses all aspects of industrial fire safety from fire detection to fire system control and extinguishing. The Company is the first in China to leverage advanced technology for fire protection and safety to clients such as iron and steel companies, power plants, petrochemical plants, as well as special purpose construction in China. [From the latest 10K filing]
• It is the largest provider of industrial fire protection systems in China with a very strong position in the iron and steel industry (80% of revenue, 70% of the market)
• Profiting from the Chinese stimulus program in general and the Chinese iron and steel industry’s Revitalization Scheme in particular (a plan to consolidate and modernize the industry create three giant steel companies by 2011, all of which are CFSG customers)
• Looking to expand to other sectors, like the nuclear sector, where 3-5 new plants are build every year
• They are already winning contracts in other sectors, like nuclear, petrochemical sector and transportation
• Providing a Total Solutions package
• They are even winning contracts outside China, six contracts in Indonesia and India
• Strong backlog provides visibility for the next 12 months
• The company is innovative (having 76 patents and 37 patents pending) and influences regulation

Metrics

• 27.6M shares outstanding
• Zero debt
• $28.5M cash
• Profit and operating margins 33% and 36%
• Insiders hold a whopping 76%
• The Li Brothers Holdings, Inc. are the largest holders with 57%
• Operating cash flow (year to date) $4.2M

What we like

• With the kind of industrial base and growth China displays, being top dog in the top market is where you want to be
• Good track record with 30%+ growth a year
• Leading position, well recognized brand
• Expansion opportunities in other sectors and even abroad
• Sold off in October, providing a new entry point
• It’s cheap, especially considering the growth opportunities, track record, strong balance sheet, margins.
• Survived more difficult years pretty well
• Over time, the renminbi can only go up against the US dollar

What we don’t like/Risks

• It did have a bit of a corporate governance scare early 2008, but that seems well and truly solved
• Chinese stimulus program running out
• Share performance depend on the overal China market
• Tax rate from 2012 onwards might rise to 25%

Technically

• Uptrend still intact

Verdict

• Buy on January 8 2010 at $14.59
• Buy on dips, if you can get in under $15 you’ll have a solid grower in your portfolio.