{ "docId": "019dd923-622c-750b-8b96-aa4b5c012f2a", "docSlug": "aa7e6c3950ac", "documentTitle": "TAL Education Group (TAL)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2018-06-13 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 2, "pageCount": 71, "prevPage": 1, "nextPage": 3, "slideType": "executive_summary", "function": "expose_contradiction", "density": "dense", "nDataPoints": 8, "notes": "The slide uses a classic short-seller report structure, combining company metadata with key allegations and historical context regarding Chinese frauds.", "elementsJson": [ "headline_text", "bullet_list", "paragraph" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-aa4b5c012f2a/2", "deckHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a#slide-2", "components": [ { "bbox": null, "kind": "callout", "text": "We estimate that during FY2016 through FY2018, TAL has overstated net income by at least 43.6%.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-25b2-736e-8e65-43c0a5390499", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.78, "x": 0.11, "y": 0.78 }, "kind": "list", "text": "Too good to be true – often growing revenues and profits at breakneck paces in highly competitive industries; Balance sheets blowing out – significant CapEx, acquisitions, or investments, which often turned out to be fake uses of non-existent cash to get through audits", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "9d06e5c9-714d-44b1-9ffc-869274880d02", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.43, "w": 0.39, "x": 0.5, "y": 0.14 }, "kind": "list", "text": "Although TAL is a “real business”, it has been fraudulently overstating its profits since at least FY2016. We estimate that during FY2016 through FY2018, TAL has overstated net income by at least 43.6%. We estimate that TAL’s cumulative net income margin during this period was only 8.8% (versus 12.4% reported); we estimate its FY2018 net income margin was only 10.4% (versus 11.6% reported). We believe the fraud pervades the core Peiyou business and is migrating into TAL’s online businesses. This is Part I in a series of reports. In this report, we cover two sets of fraudulent transactions that we estimate inflated TAL’s FY2016-FY2018 pre-tax profits by up to $153.2 million, or 28.4%.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "cd738dba-8371-414c-8bcf-521cdad43fb8", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "net income overstatement: 43.6%", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-25b2-736e-8e65-44d7e1742653", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.78, "x": 0.11, "y": 0.6 }, "kind": "paragraph", "text": "Muddy Waters is short TAL Education. Investors might recall the dark days of 2010 and 2011, during which numerous U.S.-listed China companies went down as frauds. It seemed like every new trading day brought revelations, resignations, or re-ratings. Companies were revealed to be frauds, regardless of their lead bankers, auditors, or top shareholders. According to the recent documentary, the China Hustle, there were approximately 400 frauds from China listed on U.S. exchanges.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "62e04261-1279-4e82-bd0b-c2daa641e8bd", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.43, "w": 0.39, "x": 0.11, "y": 0.14 }, "kind": "table", "text": "Report Date: June 13, 2018; Company: TAL Education Group; Ticker: (NYSE: TAL US); Industry: China For Profit Education; Stock Price: $45.65; Market Cap: $26.0 billion; Average Daily Volume (90-day): $171.6 million", "attrs": null, "subkind": "data", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "13cd3efb-d189-426e-9706-c7dde1874176", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.5, "x": 0.25, "y": 0.09 }, "kind": "title", "text": "TAL Education: A Real Business With Fake Financials Part I", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b394854e-5c34-4e98-8ffe-8991ddaa6f3a", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "fraud-exposure", "slug": null, "matchId": "fefd8db1-4f09-4cf4-b9d6-b2bca6c33acf", "evidence": "The slide explicitly outlines allegations of financial fraud and provides indicators of fraudulent behavior.", "confidence": 0.9 } ], "arcBeats": [], "loops": [ { "to": 71, "from": 2, "name": "Cost Of Inaction", "slug": "27-cost-of-inaction", "bestFor": "Urgent budget requests, compliance, risk mitigation", "matchId": "173d833e-f506-46f1-a81b-f0c40e490cd2", "evidence": "The document implies that investors who fail to address these discrepancies may suffer significant financial losses", "position": 2, "objective": "What is the cost of not addressing TAL Education's financial discrepancies?", "structure": "The Status Quo -> The Hidden Costs Accumulating -> The Future State of Inaction -> The Tipping Point", "confidence": 0.6, "description": "Quantify what happens if the audience does nothing" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }