Hurray Holding Co., Ltd. (HRAY) declared second-quarter financial results slightly below our expectation. The company stated that its revenue was impacted by earthquakes in China during May. The management announced that they have stabilized the WVAS business, but we remain concerned that this sector may not be able to contribute meaningfully over the near-term due to strict regulatory policies.

The financial outlook for the third quarter also remains tepid. However, Hurray has a strong financial position with 3.33/diluted share of net cash. Ongoing business transformation strategy to develop itself into a leading entertainment content production and distribution provider in China is likely to contribute favorably moving forward. We maintain our Hold recommendation on the stock.

Hurray is currently trading at 48.3x our fiscal 2008 EPADS, which is at a premium to both S&P 500 average and the peer group average. However, with respect to other selected valuation metrics, the stock is trading significantly below peer levels. According to our view, the company has not yet derived the required benefit from its diversification strategy. Therefore, we maintain our target price of $4, based on a 1.6x Price/Sales using our 2008 sales estimates, closer to the S&P 500 average.

Nalak Das contributed to the report.