{ "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": 28, "pageCount": 71, "prevPage": 27, "nextPage": 29, "slideType": "preempt_rebuttal", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 12, "notes": "Includes a footnote reference (69) and a specific table comparing deferred revenue conversion rates.", "elementsJson": [ "paragraph", "data_table", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-aa4b5c012f2a/28", "deckHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a#slide-28", "components": [ { "bbox": null, "kind": "callout", "text": "We therefore conclude that either the Shunshun consultants are doing a terrbile job placing students overseaas, or Shunshun’s CY2016 deferred revenue numbers contain more fraud than we have been able to detect to date.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-25b2-736e-8e67-072d3c8dbb01", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "Deferred Revenue to Revenue Conversion Rate: 68%", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-25b2-736e-8e67-0b4d78833a73", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.78, "x": 0.11, "y": 0.26 }, "kind": "paragraph", "text": "First, from 2016 to 2017, losses in the combined business have expanded, increasing 44% from Rmb (98.5) million to (141.5) million. Second, the conversion rate of combined deferred revenues as at the end of CY2016 to CY2017 recognized revenue has decreased significantly.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "0c29e38b-541b-43ed-b152-e1ad4207ebc3", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.78, "x": 0.11, "y": 0.19 }, "kind": "paragraph", "text": "Just prior to the release of this report, Shunshun and DFRL's 2017 SAIC financials became available. They are in Appendix E. The CY2016 and CY2017 performance of the two entities together displays two significant trends:", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "683b20e2-0804-43a2-a342-12ab0f0dd956", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.78, "x": 0.11, "y": 0.11 }, "kind": "paragraph", "text": "Shunshun / DFRL lost even more money in 2017 than in 2016 and shows numerous indicia of being a troubled business. At the end of the day, we do not believe that matters to TAL's management because it served its purpose, and TAL can engage in more fraud in the future to offset any losses it consolidates from Shunshun / DFRL.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8393634c-5e9e-4b4d-a085-5129fb5c8003", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.78, "x": 0.11, "y": 0.74 }, "kind": "paragraph", "text": "We therefore conclude that either the Shunshun consultants are doing a terrbile job placing students oversea, or Shunshun's CY2016 deferred revenue numbers contain more fraud than we have been able to detect to date. We suspect it's both.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "9c60bde1-4181-4cd2-be98-2909938e96bf", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.78, "x": 0.11, "y": 0.87 }, "kind": "source-note", "text": "69 After deducting the inflated deferred revenue suspected as fraud, the CY16 liabilities are Rmb 172.81 million (303.58-130.77) and CY17's recognized revenue of Rmb 76.47 million equates to a conversation rate of just 44.2%.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "1b60fbe1-cc4d-4dcb-a7f1-d5de77291037", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.21, "w": 0.62, "x": 0.19, "y": 0.49 }, "kind": "table", "text": "Deferred Revenue to Revenue Conversion Rates Combined Shunshun & DFR", "attrs": null, "subkind": "data", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f6c9340a-891e-416c-8c89-65a6a9da83f8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.16, "x": 0.11, "y": 0.09 }, "kind": "title", "text": "Shunshun is a Dog", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3645c6a5-94b6-4a94-bd27-d8167c5ef0a8", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "fraud-exposure", "slug": null, "matchId": "00dbf9d8-434f-4fa1-8684-0c76ff987489", "evidence": "Analysis of deferred revenue conversion rates to identify potential financial manipulation.", "confidence": 0.9 } ], "arcBeats": [ { "to": 71, "from": 3, "beatId": "9de0976e-28e1-420f-a107-b337349d49c9", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Expose Contradiction", "beatSlug": null, "evidence": "The document is primarily composed of slides that expose contradictions in TAL Education's financial reports", "position": 0, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null }, { "to": 28, "from": 5, "beatId": "11c13b7b-b36c-475f-9c6c-e855711d459e", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Preempt Rebuttal", "beatSlug": null, "evidence": "The document anticipates potential rebuttals to its claims", "position": 1, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null }, { "to": 71, "from": 24, "beatId": "f1a1059e-e779-4948-a18b-bd7e979146da", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Appendix Data", "beatSlug": null, "evidence": "The document includes extensive data and financial reports to support its claims", "position": 2, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null } ], "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 }