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Dinner with China Fire & Security (Nasdaq: CFSG)
Da Dong Roast Duck, Beijing, 6/4/08
with Brian Lin, CEO, Robert Yuan, CFO, and Shayla Suen, IR rep.

First, sorry for the delay in getting these notes to the board. We’ve been extremely busy, but we finally have some time to reflect on and recap the past few days (you may see a flurry of posts from us).

Second, if you ever visit Beijing, I heartily recommend Da Dong Roast Duck. It was voted to top roast duck restaurant in Beijing last year by The Beijinger magazine, and though some online reviews seem to think it has gotten pretentious, we thought it was wonderful. The food -- and the roast duck first and foremost -- especially so.

But enough with the travelogue. I think people here are very interested in CFSG, and if posting volume is to be believed, it is a stock that many Fools either own or are watching…

The most important takeaway from our dinner with Brian, Robert, and Shayla is that China Fire has changed a lot over the past year. When we met Brian in Beijing last year, China Fire was a $4 to $5 stock that traded over the counter. What’s more, the company wasn’t very sophisticated in the ways of the American capital markets. Though the company clearly impressed us (and went on to be highlighted in that trip’s special report as well as become a Tiny Gem in Hidden Gems and a Global Gains recommendation), Brian’s presentation that day very much stressed who the company’s auditor and legal counsel was and what its “make good” provisions were -- quarterly revenue and net income goals. In other words, the talk about the business -- like so many talks we had with Chinese companies that trip -- was short-term in nature…and stressed the viability of the stock.

So much has changed.

You can probably guess that much of the conversation centered around China Fire’s experience with Sharesleuth…the shorting website whose report caused China Fire to drop all the way down to $4 recently. While there were humorous aspects (we told Brian that China Fire should have sponsored the New Orleans Hornets during the NBA playoffs this year) and serious aspects (about the general need for small Chinese companies to increase their transparency to American investors if they want to achieve their long-term goals), it was refreshing to hear Brian talk most candidly about his company and its long-term business strength as well as about his inability to control his stock price.

It’s like…over the past month or so…he read the entire library of Warren Buffett.

This, in fact, is a trend I’ve noticed at almost all of the companies we visited this year as compared to last year. The companies are starting to be less concerned about their stock price and more concerned about their fundamentals. This can only be a good thing going forward.

As for China Fire’s business, I think most people are familiar with it and we didn’t learn anything new other than that the pipeline continues to be strong and that Brian and Robert are both very excited about the planned consolidation coming to the iron and steel industries. Larger companies, they said, because they have more to lose, are much more likely to retrofit their plants to comply with fire safety regulations. Thus, China Fire remains very excited about the future.

Finally, if people don’t mind me speculating a little bit, I wouldn’t be surprised if sometime in the future China Fire & Security and China Security & Surveillance get together in some sort of strategic way. Both have similar business models, similar passions for their businesses, and complementary product lines. Imagine if a factory could get a one stop security and fire safety system. That would be very convenient. Finally, Brian Lin and Terence Yap seemed to know one another and have mutual admiration. I think it could be a very interesting development, though we certainly did not hear anything specific in this regard.

If folks have any questions, post them here. I tried just to hit the most salient, new, and interesting points in this post.

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