Global Sources Limited (GSOL)
Q1 2006 Earnings Conference Call
May 11, 2006, 8:00 a.m. EST
Executives
Kirsten Chapman - Investor Relations
Merle Hinrichs - Chairman and Chief Executive Officer
Eddie Heng - Chief Financial Officer
Analysts
David Forest - Forest Investments
Andy Van Vleck - WR Hambrecht
Dick Wei - JP Morgan
Jason Brueschke - Citigroup
Clive Regby - Libra Securities
Russell Anmuth - Gotham Holdings
Presentation
Operator
Good day, ladies and gentlemen and thank you for standing by. Welcome to the Global Sources First Quarter 2006 Earnings Conference Call. (Operator instructions). As a reminder, this conference is being recorded today, Thursday, May 11th of 2006. I will now hand the conference over to Kirsten Chapman. Please go ahead ma’am.
Kirsten Chapman
Thank you, Mary. I would like to thank everyone again for joining us today for Global Sources first quarter 2006 earnings conference call. With us on the call are Merle Hinrichs, Chairman and Chief Executive Officer; and Eddie Heng, Chief Financial Officer. If anyone has not yet received a press release, it is now available at the company’s web site at www.globalsources.com. If you would like to be added to our distribution list, or would like additional information about Global Sources, you may call Lippert/Heilshorn & Associates at 415-433-3777. There will be a replay of this call available until May 15th and the dial-in instructions are included in the press release. The replay will also be available on the Investor Relations page of the company’s website for approximately 30 days.
Before we begin, let me remind you this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are based on assumptions, and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company’s filings with the Securities and Exchange Commission. Global Sources does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
On today’s call, Mr. Hinrichs will review some highlights from the first quarter, and Mr. Heng will provide the financial review. Mr. Hinrichs will then close with an overview of the growth initiatives. I will now turn the call over to Mr. Hinrichs. Please go ahead, sir.
Merle Hinrichs
Thank you, Kirsten. Welcome everyone and thank you for joining our call. We had a successful first quarter posting revenue of $30 million. We are also seeing accelerating revenue growth which is evidenced by our 64% growth in deferred income compared to the first quarter a year ago and reflected by our guidance of 33% revenue growth for the first half of 2006 compared to the first half of the 2005.
During this past quarter, our 11th annual international IIC China Conference and Exhibition generated $3.7 million in revenue and had more attendees and exhibitors than the prior year show. In 2005, the IIC China show was held in April and as revenue of $3.1 million was recognized in the second quarter. This show has become extremely successful after our many years of investment. The top 15 semiconductor companies in the world exhibited and the attendance grew by 10% to more then 47,000 engineers and technical managers.
Turning to our other two revenue lines, online and print, these categories both grew 15% compared to last year. In April, we recently concluded three China Sourcing Fairs at the Asian World Expo in Hong Kong. Across the Board, they were a substantial success, 5,900 booths were sold, attendance was strong and there was a high level of exhibitor satisfaction. Of the 5,900 booths sold, 500 were for Fashion Accessories, 1,700 for Electronics & Components and 3,700 for Gifts & Home Products. The Fashion Accessories show was new this year to our series of China Sourcing Fairs and we were very pleased it met all its targets including the number of booths sold. With all three shows, the total participant count was over 68,150 registered attendees from 166 counties and territories. Broken down by show, there were over 11,300 attendees at the Fashion show, 26,100 at Electronics & Components and over 30,740 people attended the Gifts & Home Products show. The quality and buying power of the attendees of the shows was quite stunning. One of the world’s top retailers had 24 buying executives at the show. To name just a few of the very large buyers in attendance, in the Fashion sector buyers included Tommy Hilfiger, Giorgio Armani and in the Electronics there was BestBuy, Circuit City, NEC, Philips and Radio Shack. And in Gifts & Home Products sector, there was Carrefour, Coles Myer, Metro and Sears.
As mentioned, exhibitor satisfaction was also high. And based on renewals and new bookings, we believe all three of the shows will even be bigger in October. And in fact, we expect the entire Asia World Expo facility to be sold out for the Gifts & Home Products show with approximately 4,000 booths. During the Gifts & Home Products show, we announced a geographic expansion of the China Sourcing Fairs, a new China Sourcing Fair, Gifts & Home Products is scheduled to be held in June 2007 in Dubai. This show will help suppliers sell to buyers in the third largest re export hub after Hong Kong and Singapore.
I’ll go into more detail on this new show as well as provide an update on recent activities and our sale strategy, after Eddie Heng, our Chief Financial Officer reviews the financials. Eddie?
Eddie Heng
Thank you, Mr. Hinrichs. First quarter revenue was $30 million, up 32% compared to $22.8 million in prior year's quarter. The growth was due to 3 primary factors. The first factor was this year, our IIC show, which was held in January generated $3.7 million in revenue in the first quarter, where as last year the show was held in the second quarter. It is not our policy to provide revenue by individual tradeshow. However, this year the IIC China was held in a different quarter than last year. So we are giving its revenue figure to enable investors to make a more accurate quarter-on-quarter comparisons. The second factor contributing to the growth was a 19% growth in IIC China show revenue compared to last year’s show. The third factor was the both online print revenue grew 50% year-over-year driven by the new garment and textiles and auto and accessories verticals we’ve launched last year.
Online services revenue was $15.1 million compared to $13.1 million in the prior year's quarter. Print services revenue was $11 million compared to $9.5 million in prior year's quarter. China sales comprise 47% of total revenue and we are $14.2 million a 37% increase compared to $10.4 million in prior year's quarter. Operating expenses were $25.7 million compared to $20.8 million in prior year's quarter. The anticipated increase was due mainly to sales costs resulting from higher revenue, event production and promotion costs for the IIC China show held in this quarter, and investment in tradeshow infrastructure. Net income was $4.4 million, compared to $2.0 million, in prior year's quarter. Of the $4.4 million $1.1 million was derived from interest and other income, compared to $0.1 million in prior year's quarter. Earnings per diluted share were $0.11 compared to $0.06 in prior year's quarter. It is important to note that the increase in net income and earnings per diluted share in 2006 compared to 2005 were due primarily to IIC China which was held in the first quarter this year.
On to our balance sheet review, cash and securities on March 31, 2006 totaled $126.1 million. Short and long-term deferred income and customer prepayments which include online, trained and tradeshows, and which are all collected in cash was $62 million at March 31, 2006 compared to $37.8 million at March 31, 2005. The majority of the 64% increase reflects growth in our tradeshow business and this substantial growth is an indicator of our underlying revenue momentum. Total assets were $189.6 million compared to $143.5million a year ago. Also we do not keep any long-term debt or bank debt. Day sales outstanding or DSO were 17 days compared to 20 days at the end of last year’s first quarter. Share holder equity was $104.6 million compared to $99.2 million at December 31, 2005.
Now, I will review our financial guidance for the second quarter and first half of 2006. Before I give the guidance, I would like to remind you of how our tradeshows will impact our revenue and possibilities and explain some of our seasonality. Revenue from tradeshow is recognized in a month and you raise the event of course. Which creates great seasonal revenue fluctuation as virtually all of our largest tradeshows are expected to be held in April or October or each year. In addition, our online and trade publication advertising revenue is seasonal and tend to be highest in the fourth quarter of each calendar year. The net result is that the second and first quarter revenues are likely to be substantially higher than the first and third quarter revenues; in addition we anticipate 2006 China Sourcing Fair’s revenues to be roughly equivalent to our investment in them.
For the second quarter of 2006, we anticipate the following. Second quarter 2006 revenue is expected to be in a range of $42 million to $43 million. As a reminder, last year second quarter included $3.1 million in revenue from IIC China one of our matured and profitable tradeshows. Second quarter 2006 earnings per diluted share are expected to be between $0.06 and $0.08. For the 6 months ended June 30, 2006 we are raising our guidance to reflect the strong first quarter results. And now we expect total revenue to be in the range from $72 million to $73 million compared to the range of $69 million to $71 million previously given. First half earnings per diluted share are now expected to be between $0.17 to $0.19 compared to the range of $0.13 to $0.16, previously, given. And now I would like to turn the call back to Mr. Hinrichs.
Merle Hinrichs
Thank you, Eddie. Today let me breakdown our business for you in a slightly different manner than what we have used previously. Global Sources is the facilitator of 2 way B2B trade with Greater China and has 2 distinct segments of business. The core business is facilitating trade from Greater China to the world. We served this market with a range of English language media. The second segment of our business facilitates B2B trade in the other direction or from the world to Greater China. We served this segment of our business primarily with Chinese language media. For the core Greater China to the world segment are primarily media include our Global Sources online marketplace, our monthly trade magazines and our China Sourcing Fairs. We currently serve 10 vertical markets ranging from gifts to electronics. There were more than 484,700 active buyers and are independently served by community at March 31, 2006 and that was up 13% compared to the total last year’s quarter’s end. Lead generation through Global Sources online alone which we measure as request for information totaled over 6.6 million for the 12 months ending March 31, 2006. This is a dramatic 59% increase over the same period last year.
Now let me turn to the other segment of our business that facilitates trade, trade from the world to Greater China. In the Electronic sector, in addition to several tradeshows, we have magazines with companion websites such as Electronic Engineering Times Asia, Electronic Supply & Manufacturing China and Electronics Design China. We have a clear leadership position over direct competitors in revenue and circulation. Total audited circulation for this group exceeds 150,000 and there are more than 300,000 registered online users. In the management sector, Chief Executive China Magazine has BPA-audited circulation of 180,000, the largest among its competitors. And although reliable public members are not available we believe we are also the market leader in revenue. In addition, Chief Executive China’s companion website is China’s largest management resource with more than 600,000 registered users as of March 2006. In total, where our Chinese and Asian language media, we now have well over 1 million readers or users, comprised of audited magazine subscribers and registered online users.
I’d like to now make a few comments on our strategy. For both segments of our business, Greater China to the world and the world to the Greater China, it is our strategy to serve markets with online print and tradeshow media. Billing our tradeshow business is one of the steps we have taken to round out our already strong online and print media. Over the past two years, we have put a new sales structure in place including establishing an entirely tradeshow only sales team. This substantial upfront investment was originally done to support the launch of the China Sourcing Fairs. We now aim to leverage this investment for the following shows and for our recently announced geographic expansion for the China Sourcing Fair that will be held in Dubai in June 2007.
We are excited about the potential for the Dubai show and our early rough target is to sell 500 booths. Dubai has imported more than $12 billion worth of goods from China in the past 5 years and our export customers know Dubai is the gateway to the Middle East, North Africa and India. Cross selling is another important element of our strategy. For example, a significant number of exhibitors at the just completed China Sourcing Fairs are not currently customers of our online and print services, however, now that they have had a very positive face-to-face experience with the size and quality of our buying community. We expect them to be increasingly receptive to using our online and print media.
In summary, our strategy is to serve markets with online print and tradeshows enabling suppliers to do integrated marketing campaigns that address all stages of the buying process from awareness to lead generation right through to the placing of an order. This is a unique and powerful value proposition that we look forward to leveraging to drive future growth and profitability.
I’d now like to turn the call over to and for questions. Operator?
Question and Answer Session
Operator
Thank you. (Operator Instruction).
Our first question comes from David Forest. Please state your company name followed by your question.
David Forest - Forest Investments
Hi good morning, it’s David Forest of Forest Investments. I got a couple of questions, first of just wondering how did the April China Sourcing Fair at the new AWE go, also what was the revenue for the show? Did the attendance in booth sales pass expectations and were the suppliers happy with the quality of the buyers?
Merle Hinrichs
Thank you David, well we couldn’t have been happier with the results of the shows, all 3 of them. As you know, we have over the past couple of years and as I mentioned earlier invested significant resources to make these shows a success and anticipate leveraging that investment as I mentioned going forward. The show is, I guess they indeed were a success, not only on the numbers of attendees but also the quality of the buyers that attended. In fact, maybe we’ll spend a couple of moments on this.
The quality of the buyers attracted exemplifies much of our, I think our differentiation in the market. Our brand and of course the quality of our content in the services and just of few of these attendees, I made mentioned of this before Carrefour, Sears, Tommy Hilfiger, Circuit City and many of that standard of buyer were in attendance. They may be as buyers we work with quite closely as well, making arrangements for suppliers to meet with them in private surroundings which also helped differentiate the kind of services that we can provide to our suppliers. The information also I think that we provided on the tradeshows is the number of booths and the product associated with the particular show. We typically do not provide revenue figures, as I mentioned earlier we provided some figures on the IIC show that was the exception rather than the norm, and but with that in mind this April, we sold over 5,900 booths, with over a 68,000 buyers from and I would like to underline this as well from some 166 countries attending across 3 shows. So in every respect these shows were indeed a success and I want to congratulate our team for having done such a stellar job. Thank you for the question David.
David Forest - Forest Investments
Great. And just one follow-up, looking at the October Fairs, what’s expected, what is the booth renewal rate for the October China Sourcing Fair?
Merle Hinrichs
Okay, of course there is a bit of a guidance that you hear but let me give you some feedback, or feedback from specifically from exhibitors in terms of renewals of the booths for future shows is perhaps the most important overall indicator. If our exhibitors were not happy they are not going to be renewing and we are really quite pleased with the feedback. We expect each of the shows to be larger this coming October. We expect a total sell out for the Gifts & Home Products show, which would be about 4000 booths which will fill all 10 holes at the AWE. In fact we have also suggested to the Expo that in a couple of years that we could possibly use any additional space that they may wish to build on that premises. We believe that China Sourcing Fair of the Electronics & Components will also expand in October. We should be north of 2,000. And for Fashion Accessories we’re looking to expand to a second hall for that show, simply based up on the demand from the exhibitors. So we’re really quite happy with the result of these shows, David and I think that every aspect demonstrates that it was a success for exhibitors as well as for the attendees.
David Forest - Forest Investments
Great thank you.
Operator
Thanks your next question comes from Andy Van Vleck. Please state your company name followed by your question.
Andy Van Vleck - WR Hambrecht
Good morning at WR Hambrecht from San Francisco. Thanks for taking my call. First of all, congratulation especially on the Fairs with that I know you have been preparing for over a year now. I attended your Electronic Chip Fair in Shanghai last year. And I think it was 25% of the size of the turnouts of your Spring Fairs and I was pretty overwhelmed anyway. So they must have been massive in Hong Kong. I guess the biggest surprise for me because I knew the Fairs where doing well is what you recently reported growth in online and print revenue at 15%. I think historically it’s been upper single digit can you elaborate on what’s going on there and whether you think this is sustainable throughout the year?
Merle Hinrichs
Thank you Andy. Thank you for joining. Yes the both online and print, have been strong. A couple of reasons for that, one is that we have launched this garments and textiles publication and also this auto and accessories publication and websites that has certainly assisted. We have also done additional application sites for the electronic engineering side of it. And of course the electronic design that has added also revenue overall it has been strong and I think that our guidance that we have already provided on the second quarter is indicative of the strength of the online as well as the tradeshows and the print. So we are we are quite, quite comfortable with that with the strength of the online and the print traffic and as I said print traffic is for very good but the print and online revenue as well.
Andy Van Vleck - WR Hambrecht
Okay thank you. If I could just revisit that China Sourcing, Sourcing Fairs understanding that providing revenue for booths statistics. Could you discuss whether you see any trends on a supply exceeds demand -- do you anticipate any increase in average booth prices going forward?
Merle Hinrichs
We do Andy. This of course will be a point of discussion and as you know and appreciate when the shows removed form Shanghai to Hong Kong just last year of course we offered a number of introductory pricing for companies to maintain early decision on that. I think that we are now past the need for doing that and the price points for booths as a average will indeed increase with time.
Andy Van Vleck - WR Hambrecht
Okay thank you and congratulation across the board great quarter.
Merle Hinrichs
And thank you Andy.
Operator
Thanks your next question comes from Dick Wei please state your company name followed by your question.
Dick Wei - JP Morgan
Hi this is Dick Wei, JP Morgan Hong Kong. Good evening Merle and Eddie. Congratulations on a good quarter. And two questions and first question is that in terms online advertising growth I would I also remember hearing something about some pricing model change for some of your verticals. Was that the reason of that cost one of the reason that cost you online advertising to grow quite significantly in the first quarter. And with that growth trend continues for the rest of the year? And my second question is actually on the tradeshow side. Soon-to-see Dubai show do you would expect to see, significantly more advertising cost going forward?
Merle Hinrichs
And the last one significantly more advertising cost for the Dubai activity of our brand.
Dick Wei - JP Morgan
Yeah.
Merle Hinrichs
Is that correct is that was the, your question?
Dick Wei - JP Morgan
Yes it, it was.
Merle Hinrichs
Okay fine. So, regarding your first question Dick, we of course when we do these introductions of different vertical specialized publications and websites we do introductory pricing, we also do introductory pricing on events. So we have a very variety combination of pricing points that we use for the products and for cross selling. Obviously, one of the critical things which we believe our company does extremely well, is the integrated marketing services. And the package of services, needless to say that there is a better price point when a customer is taking all three of the services the print and online and tradeshows, for and certainly for a longer period of time there is a consideration on the price points as well.
I think that our pricing of our products and services has improved and have been honed and are more appropriate to the different verticals that we serve and is demonstrated by the up take of a larger basket of services as well as segmentation of our services. So we’re very happy with the repositioning I should say are the honing of our price points. And I certainly think that we will continue to address this and hopefully will continue to do well and providing this kind of opportunity to our advertisers.
Regarding your second question, Dick, the Dubai is a new market for us, we believe that much of the cost of developing these shows is behind us, i.e., as you can appreciate the book sales represents a substantial cost. On having said that, it is going to be necessary for us to invest in attendees or to promote the show in Dubai. And we’re now of course addressing that we want to make very sure that we understand exactly what we have to do, in addition to our own market. And as you will appreciate Dick, our databases needless to say have quite a respectable number of Middle East buyers who we certainly will be inviting to the event.
Dick Wei - JP Morgan
Thanks.
Merle Hinrichs
Thank you for your question Dick.
Operator
Thank you our next question comes from Jason Brueschke. Please state your company name followed by your question.
Jason Brueschke - Citigroup
Thank you; I’m Jason Brueschke from Citigroup in Hong Kong. Let me also add my congratulations to you Merle and on the successful launch of the China Sourcing Fair at AWE.
Merle Hinrichs
Thank you, Jason.
Eddie Heng
Thank you, Jason.
Jason Brueschke - Citigroup
Yeah, we’ve talked a lot on call about kind of what’s going on, near-term, this quarter out or maybe even in October. I kind of want to take the discussion a little bit further out, obviously to attract 68,000 attendees from 166 countries and to sell 5,900 booths is going to take a tremendous amount of sales and marketing. When you think about the success that you’ve done, really with the first 6, that is China Sourcing Fairs in Hong Kong, could you maybe talk about the branding effects that you get and maybe the leverage that you have in the model say, over let’s say, a 3 to 5 year time horizon has, you’ve really increasingly taken out yourself as to premiere tradeshow that is not only in China but as you moved to other parts in the world. And what that is likely to do to the relative expenses that you incurred with sales and marketing relative to the revenues you’re likely to get, I’m really trying to understand as how you get leveraged from your brand from your success from the same type of customers and that’s going to affect your profitability not this year but maybe our when you got a little bit more critical mass?
Merle Hinrichs
Right, excellent, excellent question Jason and thank you, and thanks for joining the call. First of all, I believe as the market, as the China market matures and it is maturing and we see that on a daily basis, they are looking for a variety of ways of marketing their products overseas. And some are selling product, some are selling factory space, some are trying to establish their brand. All of this, all of this and need help, they need help in terms of establishing the right unique selling points, the right positioning of those products and of course that is what we aim to fulfill. We know we cannot do this online alone, we know that we can’t do it in print alone. We know that we need the tradeshows and the tradeshows need the online, they need the print in order to cross promote. So it is the, it’s a perfect combination of media to carry a message appropriate for the buyer to better understand the supplier, better to understand product availability and what is critical here is that we, we provide to the buyer a quality content, quality suppliers. And Jason, I just like to share with you not only does is the advertisers on Global Sources pay more and help more focus upon on exporting and leading the needs of the buyer overseas. They are, they are much more engaged and with us and we spend, we spend a lot of time with each one of our suppliers, each one of our suppliers we will have called on, if we called on and twice we would have called and 3 or 4 times before any of the content which they want to communicate through the buyers is posted to the side or presented online or presented in print. So it is with this the systems we feel that overtime we can, we can leverage and we can cross sell. We are seeing that, we saw that at the, at the show here, many of the companies as I mentioned earlier that had, that had signed up only for the tradeshow now are signing up for the print and signing up for online and signing up for the services that we provide as they export promoting partner. So, we feel Jason that we have an incredibly solid platform of services, an excellent database of buying influences as demonstrated in being able to attract or to market to and to get pre show sign ups of some 69,000, 70,000 buyers. And that’s, I think that is as you mentioned very significant achievement. And totally differentiates us from anyone else in the market. And I think really it simplifies the quality of service, now that service is only going to be improved and owned and developed over the next 2 to 3 years, we will improve pricing points, we will improve delivery systems, we will be improving our products and I think it, it goes well for the company’s future.
Jason Brueschke - Citigroup
Great and next question, because I think the answer isn’t to replay I’d like to, if you can give any kind of color on this, clearly, that the rule is under to cost a lot more to win a new client and then to keep that client and make it a repeat customer, you probably take a lot more sales and marketing to win your initial customers then to cross sell them additional products. Does that hold true in the tradeshow business that if you get these initial customers whether that could be attendees or the people at the booth, you have to stand a certain amount which you’ve obviously done and it’s reflected in your financials. But, to keep that revenues stream and actually maybe incrementally growth across selling, can you just comment on like qualitatively, or could you just quantify the grip, how much more profitable are you, how much less cost that is involved in continuing to your maintain or extend this tradeshow business, once you truly get it up and running?
Merle Hinrichs
That, we don’t have the calculation and our thing is that we do now is that renewing, sustaining and maintaining the customers as you have, you have properly suggested is a lot cheaper than trying to, to sell our new client and the value of having these three media to provide we can start to customer, a relatively very small modest package of services and as they succeed then we can introduce them to the other, to the other services and this is precisely what we do. And, you’re correct that it’s difficult to say specifically and quantitatively, exactly what a new client costs, but I would suggest that to be at least double of what a cost of sustaining an existing customer. And the better that we get out sustaining and providing services for these customers the better, the better we will be and the better our customers will be for sure, better offer for our customers will be for sure.
Jason Brueschke - Citigroup
And if I may indulge anyone, one last question. One of the other things I think differentiates your private sourcing events, could you maybe give us an update on that I think you may have done from initiatives around the April shows just tell us how that initially it is going? Thanks.
Merle Hinrichs
I think maybe I should inform those that are not familiar with it. The private sourcing events are a micro-tradeshow, which is conducted for a selected group of buyers, for specific type of product lines. The buyers provide direction on the kind of product they are looking for. They quantify the kind of supplier that they are looking for and product. And then we assist them in pulling it all together. This has been very successful. We have had, we have buyers that, are queued up for the service. We are timing to extend this, but this is another one of these additional types of services that add traction for both the buyer and the supplier. And I think that of course bring them closer into the community that we serve, closer to the services that we provide, which has been very healthy, which has been very successful this last quarter of the last half, since it began. And we look to do a lot more of that as well.
Jason Brueschke - Citigroup
Great, congratulations on a great quarter.
Merle Hinrichs
Thank you, and thank you for the questions we did not have that in our notes tonight.
Operator
Thank you, your next question comes from Clive Regby. Please state your company name followed by your question.
Clive Regby - Libra Securities
Good evening Clive Regby, Libra Securities in Hong Kong.
Merle Hinrichs
Good evening.
Clive Regby - Libra Securities
Merle, I have been a fan on the shareholder for some years. And I’m delighted to see that your bet on the tradeshows seems to paying off so well. There was an article in the press the other day about here in Hong Kong about Macau and it referred in particular to the Las Vegas Sands. The guy that owns that show, enabled us to, apparently had initially made his name and made his fortune on tradeshows from that in particular in Las Vegas, and apparently a big push in the expansion of his casino business in Macau and a reason that the licenses has given to him by Macau precisely because of that experience with tradeshows. So my first question essentially is this an opportunity or is that a competitive threat?
Merle Hinrichs
Well I regard it is an opportunity but more importantly I think it’s an opportunity for us to look at, to evaluate Macau as an alternative or as an additional site for us to run trade shows at some point in the future. As you know facilities like this are expensive and I think frankly the more we have in, in Asia the more we have in Southern China, definitely there is going to be more competition between the different exhibition sites and hopefully that will also reduce the cost of the sites to us as well. Rather, we are exhibiting in Hong Kong whether we run exhibits in Macau. Now, having said that we have flexibility where we run the exhibits. However what is probably more important is the location of the AWE. AWE is a very strategic location, the Hong Kong international airport is the primary hub in Southern China, the Macau airport has domestic flights primarily. They certainly don’t have substantial load factors or carriers coming in from Europe and United States as Hong Kong does. Hong Kong’s hotels and infrastructure of course are ideal for the kind of shows that we are running here. So we don’t believe that from a show point of view that Macau is going to provide a threat in fact that maybe an opportunity for us moving forward, but we believe that our clients both the attendees and the exhibitors will far prefer Hong Kong as to Macau. So we will monitor this moving forward and we will certainly leverage the opportunity if leveraging looks like it would be worth while doing so.
Clive Regby - Libra Securities
Thanks, Merle I’ll take your point about the difference in the importance in the international access to Macau airport and Hong Kong the contrast is very meaningful at the moment. My second question relates to India, those of us that have watched the growth of China over the last 30 years and seen the development there of course of watching India over the last few years and the changes going there, I am speaking from ignorance here, I’ve got no idea what you’re doing in India and whether you are looking at it in the same way, but I just suggested might be worth while, any comments?
Merle Hinrichs
Absolutely, we have office in India we have sales organizations, we have of course the other 12 support staff in India we make our services available to India and companies we sell booths to Indian companies, we believe that in the future that India is a, well we don’t believe we know that India is a good market for China Manufactured merchandise and one of the reasons for the Dubai show and I think one of the reasons for the success of the Dubai show is going to be a lot of buyers from India that will be buying consumer products and I think your question was mainly from the point of view will India will be able to compete as a manufacturer of consumer products, vis-à-vis of China, we don’t see that yet on live, I, if it does mature if that comes about, we certainly will be there to provide our services to Indian manufacturers is that want to roll their global markets. We don’t see that type of initiative on anything near of the scale of China today. We don’t see the infrastructure in India to manufacture or to compete with China today. So we believe of course as we’ve seen there is been a lot of growth in IT, there has been a lot of growth in out sourcing services from India. We’ve seen certainly an improvement in that economy, we’ve seen improvement in the agricultural sector of the economy, but we haven’t seen a comparative improvement in really and specifically in the manufacturing of consumer products or export. Now there are particular lines like home textiles and lets say stainless steel table ware and that kind of product line that India is always been strong on and we do promote those products 4 different manufacturers in India. So maybe we will call it watchfully waiting but it’s not yet there for us, or but will be ready and we are on the ground already.
Clive Regby - Libra Securities
Thank you, Merle.
Merle Hinrichs
And thank you Clive and thank you for joining us this evening.
Operator
Thank you. (Operator Instruction).
And our next question comes from Russell Anmuth. Please state your company name followed by your question.
Russell Anmuth - Gotham Holdings
Hi Merle, how are you?
Merle Hinrichs
Well Russell thank you for joining us.
Russell Anmuth - Gotham Holdings
Very good, very good numbers in all respect and also that was very good that you were able to bring out the perhaps and appreciated print value. My question is speaking or thinking long-term on Global Sources direct venture with eBay which is very unique because it is the only expert focused online services of this type. How do you see this developing I’ve seen some of the, the emails and some of the products that are, that have been supplied and its pretty wide range of interesting, of interesting stuff and any thoughts on revenue perhaps for this year and then looking out beyond and how this could potentially fit into the rate of services?
Merle Hinrichs
Thank you to the question Russell. We will be giving guidance on the second half and we will be including Global Sources Direct on that. Currently and I actually mentioned is I believe in the last quarter, quarter report a webcast, we are putting in infrastructure for this, we are building a community we have now a larger number of suppliers and a larger number products as you certainly would be able to see if you and obviously would have, this is the site. We definitely need a to increase the logistical support services on this and this is something that we are in the process of doing. We are very encouraged by this opportunity but again we are taking at step by step and I certainly will have more, more for you on the next quarter call.
Russell Anmuth - Gotham Holdings
Looking out of that, if you could just say even 3 or 5 years whatever timeframe may be given business could be possibly be a mechanism to, another mechanism for, for China exporters to dissolve through you hundreds and millions dollars worth of product?
Merle Hinrichs
Well I am not, Russell, I have difficulty looking out for the next six months. But I would have not invested in this opportunity if I did not and do not still believe that it represents a significant opportunity for Global Sources. And I sincerely believe that Global Sources is very well positioned to do that successful I just would not be able to give you guidance, Russell, 2 or 3 year revenue stream for that at this time. But I most certainly, will be giving you visibility on it as, as we, as we move it forward. But we are excited we really personally really quite excited about the prospects of it. And I think that there will be a lot more of this direct, direct purchasing, if there is needless to say when you are doing cross boarder trade there are a lot of issues, those issues range all the way from the QC to the financial to the logistics and the shipments and to the returns and these are all things which we have looked at carefully we feel that we have, we have the skill sets and we’ll have the ability to, deal with it.
Russell Anmuth - Gotham Holdings
Fair enough drop some of that, some of the deferred revenue whenever you’re able to see in further out in six months?
Merle Hinrichs
Okay thank you, for to the questions Russell.
Russell Anmuth - Gotham Holdings
Bye, bye.
Operator
Thank you, management I’ll turn it back to you for closing comments.
Merle Hinrichs
Well, I would just like to say thanks to everyone that who have joined us this evening. Delighted to have you and we are of course we are delighted with the quarter and believe this is a growth as we have indicated you in our guidance for the second quarter is solid and look forward to a positive Q2 call. And all of you so, look forward to talking with you then, good night everyone.
Operator
Thank you ladies and gentlemen, that concludes the Global Sources first quarter 2006 earnings conference call. Thank you again for your participation and at this time you may disconnect.
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