Check on China: Global Sources Ltd.

Shannon Roxborough | May 08, 2008 6:20am EDT | Comment

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Who says the good old-fashioned style of business (schmoozing, shaking hands and face-to-face selling) is a thing of the past?

This year's China Sourcing Fair, a four-day event held last month at the AsiaWorld-Expo, Hong Kong's largest convention and exhibition facility, saw record attendance, featuring 3,200 suppliers, 26% more than the previous year (and a 33% increase in exhibitors from Mainland China). The fair brought together manufacturers, distributors, sales professionals and purchasing agents from all over Asia. Additional China Sourcing Fairs are scheduled for Dubai next month and Hong Kong again in October. These events are attended by representatives of some of the world's largest brands, including Samsung, Sony Corp. (NYSE:SNE), Cisco Systems (Nasdaq:CSCO), Radio Shack (NYSE:RSH), Philips (NYSE:PHG), Siemens (NYSE:SI) and The Chubb Corporation (NYSE:CB).

The annual fairs are but one of several marketing venues being used by Global Sources Ltd. (Nasdaq:GSOL), the event's organizer, to help its clients pitch new products, make valuable contacts and nail sales in China's hot marketplace.

Based in Bermuda, Global Sources is a China-focused business-to-business media, communications and marketing agency that uses trade shows, exhibition fairs, marketing websites, trade publications and seminars to connect international buyers with pre-screened suppliers. Its clients do business across a wide range of industry sectors, including computer products (hardware, software and peripherals), electronic gadgets and components, telecom and security products, clothing and textiles, auto parts and accessories, household goods and gifts. In all, the company provides over 650,000 active buyers in some 230 countries and territories with information on over 170,000 suppliers and more than 2 million products annually. In turn, the company provides suppliers with over 27 million sales leads each year. (Global Sources derives most of its revenue from suppliers located in Asia, and China is its largest market, accounting for more than half of total revenue.)

Even in this Internet age when traditional in-person business is increasingly taking a back seat to using the Web and e-mail for routine matters, trade shows remain useful marketing tools. They provide opportunities for sellers to meet prospective customers, receive feedback on products and services, and perhaps most important, close sales. The China Council for the Promotion of International Trade's most recent annual report on the Chinese exhibitions industry, released in January, said the industry grew at a fast clip in 2006 and 2007, and is expected to show continued (but more moderate) growth in 2008.

Global Sources runs Global Sources Direct, an online service that provides virtual showrooms for suppliers to show, market and sell their products wholesale on the Web directly or via eBay International's (Nasdaq:EBAY) network of sites. The online marketplace allows clients to establish a Web presence and provide prospective customers with detailed product information and digital images. Buyers, in turn, can conduct searches or make inquiries to any of about 150,000 suppliers who are categorized according to product type. Since launching globalsourcesdirect.com in 2006, Global Sources has successfully grabbed market share from competitor Alibaba.com, an e-commerce company that also connects Chinese suppliers with overseas buyers.

The media firm also offers Web-based private supplier catalogs that allow sellers to post and edit product and company data using a range of online marketing tools and cataloging applications. The company also publishes and sells to buyers, China Sourcing reports and magazines, which contain product-specific information on suppliers and supply market conditions throughout China.

Global Sources pleased investors last month, when it reported 2007 fourth-quarter revenues rose 16% to $60.8 million with earnings per share of $0.19, when Wall Street had looked for $61 million and $0.16. Management guided first-quarter 2008 revenues to $39.5 million to $40 million, and EPS to $0.11 to $0.12 ($0.11 consensus). Citigroup subsequently upgraded the shares to "buy."

The stock posted hefty gains (shooting up 34% in a single day) on the news and then began consolidating in a bullish "pennant" pattern, showing upside potential. Stern Agee kicked off coverage of Global Sources with a "buy" rating on March 8, while analysts at Citigroup upgraded shares to a "buy" from "hold" on March 11.

Last month, Stern Agee China Internet and technology analyst James Lee revised guidance, increasing his 2008 revenues estimate to $212 million and EPS to $0.71. The analyst believes that Global Sources' new pricing strategy — the company unbundled its print and Internet offerings, providing a lower price entry point for its services, while beefing up its sales force to prepare for a new marketing push — will pay off this year and act as "a major catalyst for the stock price." Analysts also anticipate continued growth momentum in the company's tradeshow business.

Over the past 52 weeks, the stock has traded between $10.50 and $35.35. Shares closed at $14.35 on Wednesday. The Street's median target is $18.50.

Global Sources will release financial results for the first-quarter 2008 before the market opens on May 22.