Red Flag Raised At HB Global Cash Balances!

Since I had been posting a lot about China based companies listed in our stock exchange, I was watching HB Global.

HB Global's stock was plunging when it said publicly it was delaying its audited accounts ( http://www.theedgemalaysia.com/index.php?option=com_content&task=view&id=237501&Itemid=79 )!!!!

Last night HB Global made the following announcement: http://www.bursamalaysia.com/market/listed-companies/company-announcements/1280081

• The Board of Directors of HB Global Limited (formerly known as Sozo Global Limited) (“HB” or “the Company”) wishes to announce that the Company’s External Auditors, Messrs. Paul Wan & Co had expressed an audit disclaimer opinion in the Company's latest audited financial statements for the financial year ended 31 December 2012, as follows:-
  “Basis for Disclaimer of Opinion
  Included in the Group’s balance sheet as at 31 December 2012 is bank balance amounting to RMB 249,633,611. In the course of our audit, we were not able to satisfactorily and independently substantiate the bank balance of the subsidiary company.  In addition we were not able to receive reliable independent confirmations on majority of the trade receivables and trade payables that were circularised; these balances represented 56% of trade receivables and 48% of trade payables as at 31st December 2012.  These brought into question the proper accounting for bank balances, trade receivables and trade payables and the corresponding transactions in the Group for the year ended 31 December 2012 and the completeness of transactions recorded in the Group’s accounting records.
  Disclaimer of Opinion
  Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for our audit opinion.  Accordingly, we do not express an opinion on the financial statements.”
  This announcement is dated 7 May 2013. 

WOW!

NOT able to satisfactorily and independently substantiate the BANK BALANCE of the subsidiary company?

Aha!

Red flag raised!

Remember the past postings on the China based stocks? So What's The Problem With China Based Companies?

The media kept on highlighting that these China based stocks were so cash rich.

I challenged that statement and I showed with a real example on how a director of a China based stock sold shares BELOW the cash per share value and for that stock, we saw the company's cash balances was said to be at 894.674 million. So much cash but the company earns only 3.416 million in interests. Does it make sense?

Let's look at the last reported quarterly earnings from HB Global. http://www.bursamalaysia.com/market/listed-companies/company-announcements/1214805

The balance sheet shows the following...

Oh yeah... cash balances were said to be at 124.725 million. HB Global 'as per'  its balance sheet is cash rich!

Now if you look at the cash flow statement below, the interest received is only 1.018 million!!!!!

 Huh?

Exactly!!!

HB Global said it holds cash balances of over 124 million but it only receives 1 million in interests!!!!

Does it make sense to have so much money and not generate any bank interest for all these cash?

Now HB Global auditors is questioning the cash balances!!!!

How?

Next time you hear someone talks about cash rich China based stocks, tell them to have a look at HB Global!!!!!

And yeah... currently there are 9 China based stocks listed here and our dear old Bursa Malaysia wants to have more such listings!!!!!

Sigh!