Comtech Group Inc. (COGO, Financial) filed Quarterly Report for the period ended 2009-03-31.
COGO GROUP INC. is a leading provider of customized module and subsystem design solutions in China. The Company believes it acts as a proxy to China's technology industry as it works with virtually all the major ODMs and OEMs in China. Cogo leverages these relationships and combines their IP to create designs that Cogo then sells to electronic manufacturers. These designs allow manufacturers to reduce their time to market for new products and ultimately increase sales. Cogo Group focuses on the digital media mobile handset and telecommunications equipment end-markets for its customized design modules while also offering business and engineering services to its large telecom equipment vendor customers. Comtech Group Inc. has a market cap of $257.7 million; its shares were traded at around $7.23 with a P/E ratio of 14.1 and P/S ratio of 0.9.
On March 16, 2007, the National Peoples Congress passed the new Corporate Income Tax law (the new CIT law) which sets the income tax rate to 25% for all companies. The new CIT law was effective as of January 1, 2008. The new CIT law provides a five-year transition period from its effective date for those companies which were established before March 16, 2007 and which were entitled to a preferential lower tax rate under the then effective tax laws or regulations, as well as grandfathering 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 a tax holiday such as the two-year tax exemption followed by a three-year 50% tax reduction shall be entitled to the tax holiday.
As a result of the PRC tax incentives above, our operations have been subject to relatively low tax liabilities. Our effective tax rate was 11.3% and 8.2% in the first quarters of 2009 and 2008, respectively. The increase in our effective tax rate was mostly due to the expiry of tax holiday for certain subsidiaries in Shenzhen, which resulted in an increase in tax expense of RMB310 thousand (USD45 thousand) as compared to the corresponding period in 2008.
Noncontrolling interest (previously referred to as minority interest) consists of a 30% of the outstanding equity interest in Long Rise Holdings Limited. For the quarter ended March 31, 2009, approximately 10.7% of our total net revenue was generated through this subsidiary.
Gross Profit. Gross profit was RMB61,440 thousand (USD8,992 thousand) in the first quarter of 2009, a decrease of RMB20,949 thousand (USD3,066 thousand), or 25.4% when compared to RMB82,389 thousand in the corresponding period in 2008. Gross margin was 14.2% in the first quarter of 2009, compared to 19.5% in the corresponding period in 2008. The decrease in both gross profit and gross profit margin is primarily attributable to the unfavorable product mix reflecting growing demands in the lower gross margin, low-end segment of the handset market.
Income Tax Expense. The effective tax rate for the three months ended March 31, 2009 was 11.3% compared to 8.2% for the comparable period in 2008. The increase in the effective tax rate was primarily due to the expiry of tax holiday for certain subsidiaries in Shenzhen, which resulted in an increase of income tax expense of RMB310 thousand (USD45 thousand) as compared to the corresponding period in 2008.
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COGO GROUP INC. is a leading provider of customized module and subsystem design solutions in China. The Company believes it acts as a proxy to China's technology industry as it works with virtually all the major ODMs and OEMs in China. Cogo leverages these relationships and combines their IP to create designs that Cogo then sells to electronic manufacturers. These designs allow manufacturers to reduce their time to market for new products and ultimately increase sales. Cogo Group focuses on the digital media mobile handset and telecommunications equipment end-markets for its customized design modules while also offering business and engineering services to its large telecom equipment vendor customers. Comtech Group Inc. has a market cap of $257.7 million; its shares were traded at around $7.23 with a P/E ratio of 14.1 and P/S ratio of 0.9.
Highlight of Business Operations:
Growth by entering new end-markets, strengthening in-house capabilities and leveraging our customer base. In 2005, we began targeting the digital media end-market and, over time, we intend to develop integrated circuit and application software design capabilities and provide solutions based on our own proprietary technology. In the first quarter of 2005, we began generating sales from customized module design solutions for digital home entertainment products, primarily for digital set-top boxes, through sales to our existing end-customers, Haier, Konka, Lenovo and TCL. We have since then grown our revenues generated from this market from constituting 10.8% of our 2005 revenue to 27.9% of our first quarter of 2009 revenue. We anticipate that sales related to the digital media end-markets will generally have higher profit margins than our mobile handset and telecom equipment modules related sales, though such higher margins may decline over time as this industry mature. We will also look for opportunities to expand into new end markets that we believe represent significant growth opportunities.On March 16, 2007, the National Peoples Congress passed the new Corporate Income Tax law (the new CIT law) which sets the income tax rate to 25% for all companies. The new CIT law was effective as of January 1, 2008. The new CIT law provides a five-year transition period from its effective date for those companies which were established before March 16, 2007 and which were entitled to a preferential lower tax rate under the then effective tax laws or regulations, as well as grandfathering 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 a tax holiday such as the two-year tax exemption followed by a three-year 50% tax reduction shall be entitled to the tax holiday.
As a result of the PRC tax incentives above, our operations have been subject to relatively low tax liabilities. Our effective tax rate was 11.3% and 8.2% in the first quarters of 2009 and 2008, respectively. The increase in our effective tax rate was mostly due to the expiry of tax holiday for certain subsidiaries in Shenzhen, which resulted in an increase in tax expense of RMB310 thousand (USD45 thousand) as compared to the corresponding period in 2008.
Noncontrolling interest (previously referred to as minority interest) consists of a 30% of the outstanding equity interest in Long Rise Holdings Limited. For the quarter ended March 31, 2009, approximately 10.7% of our total net revenue was generated through this subsidiary.
Gross Profit. Gross profit was RMB61,440 thousand (USD8,992 thousand) in the first quarter of 2009, a decrease of RMB20,949 thousand (USD3,066 thousand), or 25.4% when compared to RMB82,389 thousand in the corresponding period in 2008. Gross margin was 14.2% in the first quarter of 2009, compared to 19.5% in the corresponding period in 2008. The decrease in both gross profit and gross profit margin is primarily attributable to the unfavorable product mix reflecting growing demands in the lower gross margin, low-end segment of the handset market.
Income Tax Expense. The effective tax rate for the three months ended March 31, 2009 was 11.3% compared to 8.2% for the comparable period in 2008. The increase in the effective tax rate was primarily due to the expiry of tax holiday for certain subsidiaries in Shenzhen, which resulted in an increase of income tax expense of RMB310 thousand (USD45 thousand) as compared to the corresponding period in 2008.
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