I mentioned in my posting ‘China or Malaysia’ on 2nd Oct that...

I mentioned in my posting ‘China or Malaysia’ on 2nd Oct that even the company didn’t seem to know whether the large year end sale was to China or to Malaysia.

on page 64 of the latest accounts, the NexCode sale of $43m is stated as being to China not Malaysia, but on page 63 the detailed segmental sales information states the sale was to Malaysia!

the employee costs increased only slightly 09/08 to generate the 38k sale to China; amortisation was increased, so one must assume that the China sale was effectively a non-trade sale (ie was the sale of a capital item purchased, rather than the sale of developed software) and therefore the ‘operating’ result is very questionable, unless annually selling part of their assets with minimum added value is to be regarded as their trade, in which case the price they paid for NexCode was remarkably cheap.

We have to assume that the $5m capitalised as a 5year interest-free loan to a person in HongKong is not an accounting error or inadvertence and that it was not a commission payment.

An important test in any business also applies in this case: what do the people on the ground who know the business think? although the directors may have bought in their own names, this is essentially a distraction from the main game: it is the Chinese Malaysians who actually are involved in the operations; the Malaysian stockbrokers (who are almost all Chinese) are as sophisticated as Australian stockbrokers and probably more open to speculative opportunities; they are clearly not buying, as evidenced by the incredibly low PERatio.

The principal or only asset of NBS is the loan to its Malaysian subsidiary; NBS raised $50m in capital 2008 2009 and passed it directly on to its subsidiary; the Australian auditor may have signed-of on the accounts and clearly performed a considerable volume of work, but the assets and sales are in the Malaysian subsidiary, not in NBS, and a degree of audit reliance would have been on the Malaysian auditor– see p49.

If the ASX Market Depth on NBS is a guide then the unfortunate buyers are numerous and small; the sellers have consistently been relatively large.

I hold to my view posted on HC a month ago re the draft accounts, and now the final accounts: there is a bad smell about them.
PeterA