Comtech Group Inc. has a market cap of $245.8 million; its shares were traded at around $6.85 with a P/E ratio of 15.6 and P/S ratio of 0.8. COGO is in the portfolios of Paul Tudor Jones of The Tudor Group, Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:Growth by entering new end-markets, strengthening in-house capabilities and leveraging our customer base. In 2008, we began targeting the industrial business end-market by providing industrial solutions for the green energy and auto-electronics sectors. Since then the revenues generated from this market have grown from 11.7% of our revenue in the second quarter of 2009 to 17.4% of our revenue in the second quarter of 2010. We anticipate that sales related to the industrial business end-markets will generally have higher profit margins than our digital media and telecom equipment modules related sales, though such higher margins may decline over time as this industry matures. We will also look for opportunities to expand into new end markets that we believe represent significant growth opportunities.
Noncontrolling interest consisted of 30% and 40% of the outstanding equity interest in Long Rise and Comtech Digital Technology (Hong Kong) Limited (Comtech Digital), respectively. For the quarter ended June 30, 2010, approximately 3.3% of our total net revenue was generated through Long Rise. Comtech Digital was established in March 2010 and 0.2% of our total net revenue was generated for the second quarter of 2010.
Prior to January 1, 2008, the PRCs statutory income tax rate was 33%. In addition, Shenzhen Comtech, Comtech Communication, Comtech Software, Comloca Technology (Shenzhen) Company Limited (Comloca), Epcot Multimedia Technology (SZ) Co. Ltd. (Epcot), Shenzhen Huameng Software Company Limited (Huameng PRC) and Viewtran Technology (Shenzhen) Co., Limited (Viewtran PRC) (collectively the Shenzhen Subsidiaries), being located in the Shenzhen Special Economic Zone in the PRC, were subject to a reduced tax rate of 15%. Since the Shenzhen Subsidiaries agreed to operate for a minimum of 10 years in the PRC, the Shenzhen Subsidiaries were each entitled to a tax holiday of two-year tax exemption followed by three-year 50% tax reduction from the first profit making year after offsetting accumulated tax losses of the respective Shenzhen Subsidiaries.
The CIT law and its relevant regulations provide a five-year transition period from January 1, 2008 for those companies which were established before March 16, 2007 and which were entitled to preferential lower tax rates under the then effective tax laws or regulations, as well as grandfathering certain tax holidays. The transitional tax rates are 18%, 20%, 22%, 24% and 25% for 2008, 2009, 2010, 2011 and 2012 onwards, respectively. For the Shenzhen Subsidiaries that were entitled to the tax holidays of two-year tax exemption followed by a three-year 50% tax reduction from the first profit making year after offsetting accumulated tax losses, and they are entitled to continue the tax holidays until they expire. For Comloca and Huameng PRC which had not commenced their respective tax holiday as of December 31, 2007, the CIT law and its relevant regulations require the tax exemption period to begin on January 1, 2008.
As a result of the above incentives, our operations have historically been subject to relatively low tax liabilities, which will increase in the near future. Our effective tax rate was 10.0% and 10.7% in the six months ended June 30, 2010 and 2009, respectively. Included in the income tax expense for the six months ended June 30, 2010 was a deferred income tax benefit of RMB1,799 thousand (USD265 thousand) as a result of the amortization of intangible assets of RMB10,902 thousand (USD1,608 thousand).
Gross Profit. Gross profit was RMB87,281 thousand (USD12,870 thousand) in the three months ended June 30, 2010, an increase of RMB15,655 thousand (USD2,308 thousand), or 21.9% when compared to RMB71,626 thousand in the corresponding period in 2009. Gross margin was 14.1% in the three months ended June 30, 2010, compared to 14.3% in the corresponding period in 2009. The increase in gross profit was primarily attributable to increased sales volume in all end-markets. The decreased gross margin was mainly due to the change in revenue mix, of which the digital media and telecommunications equipment related sales had a relatively lower margin.
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