Comtech Group Inc. (COGO) filed Quarterly Report for the period ended 2009-09-30.
Comtech Group Inc. has a market cap of $216.09 million; its shares were traded at around $5.98 with a P/E ratio of 15.33 and P/S ratio of 0.75.
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 and we provide industrial solutions for the green energy and auto-electronics sectors. We have since then grown our revenues generated from this market from constituting 4.5% of our 2008 revenue to 12.1% of our first nine months of 2009 revenue. 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.
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 11.6% and 3.7% in the nine months ended September 30, 2009 and 2008, respectively. Included in the income tax expense for nine months ended September 30, 2009 was a deferred income tax benefit of RMB3,563 thousand (USD522 thousand) as a result of the amortization of intangible assets of RMB22,574 thousand (USD3,307 thousand).
Noncontrolling interest (previously referred to as minority interest) consists of an interest of 30% of the outstanding equity interest in Long Rise Holdings Limited (Long Rise) that is held by a third party. For the three and nine months ended September 30, 2009, approximately 9.9% and 2.4% of our total net revenue was generated through this subsidiary, respectively.
Gross Profit. Gross profit was RMB80,829 thousand (USD11,841 thousand) in the three months ended September 30, 2009, an increase of RMB10,612 thousand (USD1,555 thousand), or 15.1% when compared to RMB70,217 thousand in the corresponding period in 2008. Gross margin was 14.4% in the three months ended September 30, 2009, compared to 13.8% in the corresponding period in 2008. The increase in both gross profit and gross profit margin was primarily attributable to the increased revenue in industrial business end-market, in which its gross margin was generally higher than that of digital media and telecommunications equipment end-markets.
Income Tax Expense/Benefit. The effective income tax rate for the three months ended September 30, 2009 and 2008 was 12.9% and (23.8)%, respectively. The fluctuation in the effective income tax rate was primarily due to the expiry of the tax holiday for certain subsidiaries in Shenzhen. Included in the income tax expense for the three months ended September 30, 2009 was a deferred income tax benefit of RMB1,177 thousand (USD172 thousand) as a result of the amortization of intangible assets of RMB7,453 thousand (USD1,092 thousand).
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