"As the leader in China's industrial fire safety market, China Fire & Security (CFSG) is well-positioned to leverage the growth potential in this market. Its revenue and earnings have exceeded the market consensus for two consecutive quarters since the market started to cover this company in July 2007.
We believe that CFSG can grow its earnings at 30% annually in the next five years. We don't think its current price fairly reflects the company's growth prospects. So we are initiating coverage of CFSG with Buy rating.
The stock is currently trading at 13.7x our estimate for fiscal year 2008 earnings per share, which is much lower than the industry mean. Using a P/E multiple of approximately 20.0x our fiscal year 2008 earnings per share estimate yields a target price of $15.00, which we believe reflects the company's growth prospects."