February 28, 2016 - 8:33pm EST by
2016 2017
Price: 7.36 EPS .50 .50
Shares Out. (in M): 27 P/E 14.7 14.7
Market Cap (in $M): 201 P/FCF 0 0
Net Debt (in $M): -193 EBIT 0 0
TEV (in $M): 9 TEV/EBIT 0 0

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I am recommending a long in Global Sources. The Company is a US-listed, Hong-Kong based operator of tradeshows and exhibitions, online marketplaces, and trade publications focused on Greater China vendor sourcing for the electronics and retail industries. More than 1mm buyers, including 95 of the world’s top 100 retailers, use the Company’s tradeshow, marketplace and information services to help them source from overseas supply markets.

The thesis is pretty simple. Global Sources currently has a ~$200mm market capitalization, but has ~$60mm in net cash and ~$125mm in Asian office properties and freehold land and buildings held at book value. Together, these assets cover nearly the entire current market capitalization.

Furthermore, the book value of these real estate investments understates their market value by a substantial margin. In the latest Annual Report, Management appraised the Company’s real estate portfolio at ~$242mm based on an independent valuation report prepared by Savills Valuation, a substantial premium to the $142mm carrying value. The Company recently sold its stake on the 50th floor of the Shenzhen International Chamber of Commerce Tower in Shenzhen, China for $21.7mm, which had a carrying value of just $3.8mm.

Other key assets remaining include ~60,000 square feet of office space in Hong Kong (Southmark and Vita Tower), 22,000 square feet of office space in Singapore (One Sims Lane), ~6,700 square feet of office space in Shanghai (City Point).  


Therefore, by stripping out the net cash and real estate portfolio, investors are getting the core operating business at a negative value. Trends in the business are admittedly mixed and have been impacted by weaker growth in the China export market. The exhibitions business generates ~$10mm of annual EBITDA and has been growing by ~10% per annum over the past several years. The media business, which publishes trade magazines and operates, a marketing website for suppliers, generates ~$18mm of annual EBITDA and throws off significant amounts of cash, but has been declining ~10-15% per year due to pressures in print advertising and competition. While I do not ascribe a high multiple to the core business, they are assets worth substantially more than $0.


In recognition of the stock’s significant undervaluation, Global Sources has been returning significant cash to shareholders. The Company recently completed a Dutch tender in July 2015 for 6.666mm shares, retiring ~20% of the shares outstanding at $7.50 per share. The Company is owner-operated, and the CEO, Merle Heinrich, who is the largest shareholder and owns around 2/3 of the Company, recently bought 1.8mm shares on the open market worth $15.4mm. 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


Share buybacks, real estate monetization, Management buyout 

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