We continue to rate Cogo Group, Inc. (COGO) a Hold.  The results of the first-quarter were above our estimates primarily because of strength of its revenues, and the company slightly raised guidance for 2008, due to existing visibility and new business in the pipeline.

However, the company is heavily exposed to a few large telecom companies in China, and if the market begins to weaken, we believe Cogo will bear the brunt of any declines.

The announcement of stock repurchase plan and a proposed acquisition of MegaSmart in the second quarter of 2008 will divert cash resources necessary to fight pricing pressure in the mobile handset business. The proposed acquisition in 2Q08 has led us to maintain our earnings estimates for 2008, while slightly raising our revenue expectations.

Shares of COGO are currently selling at 13.9x our 2008 earnings estimate of $0.72 per share on a US GAAP basis. The company is selling at a PEG ratio of 0.56x based on 2008 earnings estimate and EPS, which is expected to grow at 25%. Our estimate reflects expected improvement in operating and pre-tax margins in 2008.

We have changed our price target to $10.60 based on the company selling between 14.6x and 14.8x our 2008 earnings estimate, and we believe this is the fair value of the stock with all the positive news regarding the company slated to come in steadily over the next six months.

Udayan Mukherjee contributed to this report.