About China Public Security Technology, Inc.

Through its wholly-owned Chinese subsidiary, CPST is focused on the development and implementation of large scale, high-tech public security and Geographic Information System (GIS) related projects. The Company provides a broad portfolio of fully integrated solutions and services, including public security information technology (First Responder Coordination Platform, Intelligent Border Control and Intelligent Security Surveillance), Geographic Information System (Police-use GIS and Civil-use GIS), and e-Government Platform services, software sales and maintenance services. CPST currently has the licenses to 16 registered and copyrighted software applications in China, through its exclusive commercial arrangement agreement with Shenzhen iASPEC Software Engineering Company Limited (iASPEC). Under this agreement the Company acts as iASPEC’s exclusive subcontractor to all its customers. To learn more about the Company, please visit the corporate website at http://www.chinacpby.com .

CPBY  seems to be experiencing a lot of growth over the past year since they have become a publicly traded company on the OTCBB market. Not to my surprise this is anther chinese stock under the radar and looking depressed in value at its current share price of 6.20 as of the close on 8/30/07. Price has been pretty unactive on low volume until a very interesting PR was released on 8/13/07 about the installation of their software for police survaliance vehicles in Southern China, along with information about 2 hedge funds doubling up there positions on this stock.

China Public provides surveillance software: report
Sunday August 12, 4:12 pm ET

NEW YORK (Reuters) - U.S.-financed China Public Security Technology (OTC BB:CPBY.OB - News) will provide software that links to at least 20,000 police surveillance cameras being installed along streets in southern China, according to the New York Times on Sunday.
China Public is also creating computer chip “residency cards” that will be issued to most of Shenzhen’s 12.4 residents and nearby neighborhoods, said the New York Times in its August 12 edition. Data on the cards will include the citizen’s name, address, work history, educational background, religion, police record, personal reproductive history and many other personal details, the newspaper said.

The company’s camera software will allow Chinese police to automatically recognize the faces of suspects and detect unusual activity, the Times said.

China Public has a market capitalization of $185.3 million, and two hedge funds that bought stakes have more than doubled their investment since February, the Times said.

Shares of China Public closed Friday at $4.70 on the over-the-counter bulletin board.

(Reporting by Sarah Coffey)
The day after this PR released shares surged premarket to  gap open at 6.10 for mondays session from fridays close of 4.70 on heavy volume which has sparked interest as volume watchers became aware of this stock as i did with this recent rally after its pullback from the 13th of August. As of yesterdays close CPYB.OB has made a very bullish breakout on above average volume suggesting further bullish activity to continue in the coming weeks from a Technical Analysis point of view. But are their fundamental reasons for this breakout as well which also suggest a continuation? You betcha, otherwise i wouldn’t be writing this piece, ironically the name of my website doesn’t entirely coincide with my trading strategies. A bullish stock chart isn’t truly bullish unless it has fundamental backing. That said my trading style isn’t based solely on technicals the least bit, fundamentals tell me what stocks to buy, technicals tell me what stocks i should research, and when to buy. So a stock i want is a stock that has “Technifunds”, i suppose i’ll coin that term, which we’ll say means: has bullish technicals along with a positive and healthy fundamental outlook.

CPBY.OB released a very strong Q2 report  and outlook for 2007 and 2008 which are very impressive:

    Second Quarter 2007 Highlights (Pro-Forma measures)
    -- Total revenues increased 200% year over year to $10.5 million;
    -- Gross profit rose 143% year over year to $5.1 million, representing 49%
       gross margin;
    -- Operating income rose 163% to $4.2 million, with operating margin
       reaching 40%;
    -- Net income grew 228% to $4.6 million, or $0.12 per basic share and
       $0.11 per diluted share.

Second Quarter 2007 Results

“Following a strong first quarter, China Public Security delivered exceptional growth in revenues and profits in the second quarter, as we continued to win important new contracts in the public security sector and expand the breadth of our product offerings,” Mr. Jiang Huai Lin, CEO of China Public Security said. “In the second quarter, we successfully implemented an Intelligent Border Control System at the Shenzhen Bay Port and Futian Port, and introduced an exciting new solution to deal with identity card management and internal immigration. Our recent wins strengthen our confidence that we will achieve our financial objectives for 2007 and beyond, as we continue to win additional contracts and expand our offerings to other major regions of China.”

Outlook for 2007

“The market for public security information technology is continuing to increase based on the ‘Police Force Technology Reinforcement’ initiative advocated by the PRC government. An increasing number of cities are eager to build or install public security information technology systems,” said Mr. Lin. “There are about 660 cities and 280 borders in China. Just within Guangdong province we see significant opportunities to deploy our public security information technology solutions. In addition, GIS has significant opportunities not only in police-use but also in civil use.”

For 2007, management increased estimated revenues to $32 million with net income of $12.5 million. For 2008, the company expects revenues of $53 million with net profit expected to reach $21 million.

So with that being said, they’re expecting a huge jump for 2008 almost doubling in growth for revenues and earnings with a very attractive forward price to earnings ratio. CPBY is listed under the applications software industry which is currently trading at a 27.3x earnings multiple compared to CPBY trading at a current forward 2008 P/E ratio of approximately :

39.4m shares outstanding
2008 net income estimated at $21m

2008 EPS estimate = $21,000,000 / 39,400,000 = .53

2008 Forward P/E = 6.20/.53 = 11.69x

With these  #’s  of forward growth we could possibly expect  CPBY.OB to continue its bullish movement in share price to become fairly valued in the application software industry moving forward into 2008. Which would entail share prices near 14.46 {.53eps X 27.3x avg} aka 133% gain from todays closing price of 6.20 making this stock look undervalued as the outlook is over double from todays share price. CPBY also has a healthy looking balance sheet with zero long term debt, $5m+ in cash, and an outstanding current ratio of 14.96 which is probably the highest CR I’ve ever seen.

Technically this stock has made a very nice looking bullish breakout with volume to back it up, though the stock has made a very strong rally over the past 4 sessions which could possibly be followed by some profit taking proving this to be a false breakout. I’ll look to buy 1/2 tomorrow and look for the other 1/2 on weakness of profits are taken.

This entry was posted on Thursday, August 30th, 2007 at 11:20 am and is filed under Small Cap Stock Picks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.