Mild Applause for Hurray! Holdings

We maintain our Hold recommendation and the same valuation target for Hurray! Holding Co. Ltd. (HRAY), a leading provider of wireless value-added services (WVAS) and digital download content in China. This is following mixed financial results for first quarter 2008.

Top-line sales volatility continues despite momentum improvement for the core WVAS market. Net income was above our estimate due to improved operating efficiency. Hurray! has a strong financial position with $3.10/diluted share of net cash. The company's ongoing business transformation strategy taken to develop into a leading entertainment content production and distribution provider in China is likely to contribute favorably moving forward.

On the other hand, the overall Chinese WVAS market remains challenging due to strict regulatory policies and we expect sales fluctuations to continue over the next six-to-twelve months. Therefore, we maintain a Hold rating on the shares.

Hurray! is currently trading at 59.4x 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 required benefit from its diversification strategy and its WVAS business needs to demonstrate further stabilization.  Our target price of $4 is based on a 1.4x Price/Sales using our 2008 sales estimates, closer to the S&P 500 average.

Nalak Das contributed to this report.

Read the full analyst report on HRAY.

Read the full analyst report on HRAY