On Monday, Global Sources (NASDAQ:GSOL) announced a very aggressive expansion plan for its 2008 exhibition business.
The major highlights include:
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 available booths 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, with 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 the number of booths in these major shows in 2008. When added to the increasing booth selling price, this should be very good news to investors.
However, the market either did not pick up the news, or was impartial to its 2008 plan, as the share price of GSOL dropped a further 4% on Monday.
From May 17, when I first wrote about GSOL, 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 deserves a re-rating.
So what’s the problem with GSOL? It’s all about poor investor relationship management, and too much insider shareholding.
I’ve done a comparison table as follows:
As you can see, 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, so I picked some China internet companies for the ‘China concept’), which are several times higher.
In addition, only 10% of the company's shares are held by institutional investors and mutual funds, which again, 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, the founder and CEO of the company, has been running it for 35 years. I do pay high respect to the management team for the solid business they have built, but I wish Mr. Hinrichs would spend more time with institutional investors, in order to increase their interest in the company. The next six months probably provides the best for them to leverage their interest in China B-B companies, that was created by the forthcoming Alibaba listing.
For Jack Ma, founder and CEO of Alibaba, he should seriously consider acquiring GSOL. With Alibaba and GSOL combined, they would be the clear leader in China's integrated B-B trading, marketing, and exhibition business.
GSOL will announce its Q2 result this Thursday, so tighten your seat belt for another roller coaster ride!
Disclosure: The author is long GSOL.