Tuesday, August 7, 2007

Global Sources (GSOL) needs better Investor Relationship Management

Global Sources (GSOL) yesterday announced a very aggressive expansion plan for its 2008 exhibition business.

Major highlights:

  • Two China Sourcing Fairs in Dubai, which are expected to boost sales capacity to 900 booths, up from 500 in 2007;

  • Two China Sourcing Fairs in Shanghai, increasing booths available from 450 in 2007 to over 1,000 in 2008

  • One International IC-China Conference & Exhibition (IIC-China)in Chengdu, and, co-located with IIC-China in Shanghai and Chengdu, two Electronic Components Pavilions, increasing booth capacity from 1,000 in 2007 to over 1,500 next year.

  • Altogether there will be a 74% increase in number of booths to these major shows in 2008, adding to the increasing booth selling price this should be very good news to investors.

    However, market either did not pick up the news or was impartial to its 2008 plan, share price of GSOL dropped a further 4% yesterday.

    From the date I first wrote about GSOL on 17 May, its share price has gone up by 37% but recently free fallen significantly with only 3% gain left.

    I still believe GSOL has a very solid business fundamental. Besides, with recent confirmation of Alibaba's HK listing scheduled in 2H, GSOL should deserve a re-rating.

    So what’s the problem with GSOL?

    It’s all about poor investor relationship management and too heavy insider shareholding.

    I’ve done a comparison table as follows:

    As can be seem, GSOL’s insiders (which essentially are the management team) are holding 71% of all issued shares, versus the other Chinese comparables I’ve chosen (there is no direct comparable, I’ve picked some China internet companies for the ‘China concept’) which is several times higher.

    Besides, only 10% of company shares are hold by institutional investors and mutual funds, again it is significantly lower than the others.

    The roller coaster share price which doesn’t truly reflect the company’s business fundamental is largely due to the light trading volume (0.2M)

    Mr. Merle Hinrichs is the founder and CEO of the company, who has been running the company for 35 years. I do pay high respect to the management team for the solid business they have built, however, I wish Mr. Hinrichs can spend more time with institutional investors and increase their interest in the company.

    The next 6 months probably is the best time to do that so as to leverage institutional investors’ interest in China B-B companies as created by the coming Alibaba’s listing.

    For Jack Ma, founder and CEO of Alibaba, he shall seriously consider acquiring GSOL. With Alibaba and GSOL combined, it will be the clear leader in China providing integrated B-B trading, marketing and exhibition business.

    GSOL will announce its Q2 result this Thurs, tighten your seat belt for another roller coaster ride!

    Disclosure: I am LONG GSOL