China’s leading industrial fire protection system provider, China Fire & Security Group Inc. (CFSG: 9.14 +0.58 +6.78%), announced that it has been awarded two retrofitting contracts by Anshan Iron & Steel Group Corporation to the tune of approximately $4.1 million.Headquartered in Anshan City, Liaoning Province, China, Anshan Iron & Steel Group is considered one of the top three iron and steel companies in China and boasts of an annual production capacity of 32 million tons of iron and steel.
Under the first contract, worth $3.4 million, China Fire will provide fire protection services for a retrofitted medium-heavy plate mill at Anshan Group’s Bayuquan Base located in Yingkou City, Liaoning Province. Bayuquan Base is one of the company’s top three production bases, with an annual production capacity of 15 million tons.
China Fire will provide a turn-key fire protection system featuring its Fire Security Information Management System, which facilitates real-time network monitoring, an Automatic Fire Alarm and Control System, a Fire Emergency Communication System, and a Water Mist Fire Extinguishing System.
This turn-key solution will ensure that the mill’s main production areas — underground cable tunnels, hydraulic stations, oil depots, underground electrical rooms and step-down transformers — are protected from fire and comply with the new fire codes for China’s iron and steel industry. This project is expected to be completed within the next six months.
As per the second contract valued at $700,000, China Fire will provide total solution retrofitting service for ANSC-TKS Galvanizing Inc. (“TAGAL”) — a joint venture company formed by Anshan Iron & Steel Group and Germany-based global integrated materials and technology group, ThyssenKrupp Stahl.
The China Fire-TAGAL association goes back to 2005, when the former was contracted to implement a supporting fire protection system for TAGAL’s phase I and II projects. The current contract requires China Fire to employ its proprietary products, such as linear heat detectors and a fire-alarm monitoring and control system, to ensure TAGAL’s plant is fully compliant with the new fire codes for iron and steel industry. This project is expected to be completed within the next three months.
The contract wins are an offshoot of China’s stimulus measures to bolster steel-reliant industries. At the end of March 2009, China’s State Council released details of its China Iron & Steel Industry’s Revitalization Scheme. The scheme promotes total production control, encourages industry consolidations and emphasizes the development of new technologies.
This stimulus plan provides financial subsidies and loan discounts to leading iron & steel companies. This has led advanced steel producers to upgrade existing plants and to build new ground-breaking facilities. Given that China Fire derives a dominant portion of total revenue from the iron and steel industry, it stands to benefit from such upgrades.
A major amendment of the Fire Prevention Law issued on May 1, 2009, requires all fire protection products to comply with the national standards. Nearly 80% of steel plants are not fully compliant with new mandatory fire safety requirements. Given the strong support from the government, China’s massive iron and steel industry will likely accelerate retrofitting outdated fire safety systems.
The market for the design and installation of fire safety systems in China is served by numerous small companies, but China Fire has been recognized as the largest player in the past five years. With its leading brand reputation as a total solutions provider and its comprehensive line of proprietary products, China Fire has won around 60%—70% of bids in the iron and steel industry. China Fire is thus well positioned to capitalize on the emerging growth potential in this market.
Currently, China Fire primarily serves the iron and steel, power and petrochemical industries, and relies heavily on the iron and steel industries for its revenues. Though the company is now exploring other industrial sectors, we believe its inability to successfully expand the market for its products and services in these industries will limit its long-term growth potential. Thus we maintain our long-term recommendation of Neutral on China Fire.
China Fire & Security Group, through its wholly owned subsidiary, Sureland Industrial Fire Safety Limited, is engaged primarily in the design, manufacturing, sales and maintenance services of a broad product portfolio including detectors, controllers, and fire extinguishers. China Fire’s clientele includes major companies in iron and steel, power, petrochemical and transportation industries throughout China.
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