{ "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": 58, "pageCount": 71, "prevPage": 57, "nextPage": 59, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "dense", "nDataPoints": 0, "notes": "The slide functions as a forensic accounting analysis, using bullet points to detail suspicious financial patterns and operational discrepancies.", "elementsJson": [ "bullet_list", "footnote" ], "metadataConfidence": 0.9, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-aa4b5c012f2a/58", "deckHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a#slide-58", "components": [ { "bbox": null, "kind": "callout", "text": "We suspect that in 2016, its revenues might have been temporarily moved over to Shujia.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-25b2-736e-8e69-f334e78abf77", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.78, "x": 0.11, "y": 0.77 }, "kind": "disclaimer", "text": "141 https://www.changingedu.com/guangzhou\n142 Shujia now appears to be an orphaned company and was listed by the local tax authorities to be an “irregular tax payer”. Being an online business, it is possible that its sales have moved on and are being recorded by another of Changing Edu’s online business entities.\n143 https://fudaoquan.com/p/12746.html, An article from May 2016 article notes that close to 30 were established and 60 were planned by August 2016. However, hyperbole is rampant among start-ups, especially in China. A former Changing Edu manager we interviewed, stated that 10 to 20 Sharing Schools (originally under Changing Edu’s Zhidian company) were set up on CY2016.\n144 Hu Guozhi departed Changing Edu in 2016 and brought the Sharing Schools (Sishujia) with him into a new entity. Changing Edu’s Liu Chang Ke has continued to support him through investment, and he and TAL’s Zhang Bangxin are Directors at his new venture. http://epaper.21jingji.com/html/2017-06/02/content_63534.htm", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "10920337-dfae-4b7b-b247-c53974508efb", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.72, "x": 0.14, "y": 0.112 }, "kind": "list", "text": "The vast majority of Shujia’s 2015 and 2016 revenue match up with the value of its “other receivables.” This suggests that Shujia was not simply recognizing tuition revenue from its accumulated pre-paid tuitions, but its revenue was coming from third party(ies) and collected at a later date.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "298692df-dd09-416c-9889-c07c5d0a64e0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.72, "x": 0.14, "y": 0.308 }, "kind": "list", "text": "Shujia and the other Guangzhou businesses carry very low cash balances. While the balance sheet represents only a point in time, we find it peculiar and possibly significant. If Shujia were operating GZ 1-1, with or without TAL’s assistance, we expect it would need to hold more cash than shown on the balance sheet. The cash should be building up like a war chest that would go not just to future expenses, but also its planned growth.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "49ee7a0c-6d2f-473b-bb87-bb3a69d73df3", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.22, "w": 0.72, "x": 0.14, "y": 0.415 }, "kind": "list", "text": "Guangzhou Zhidian was the entity initially used for Changing Edu partner Guozhi Hu’s new experiment in the Sharing Schools, “Sishujia”. In 2016, Guangzhou Zhidian showed very little activity. However, it appears that 10 or more Sharing School locations had been set up in Guangzhou in 2016. Because it was opening new Sharing Schools, we would expect Guangzhou Zhidian’s accounts to show greater activity. Shujia meanwhile does report Rmb 3 million of “construction in process” at the end of CY2016. Since the GZ 1-1 businesses would have transferred out such assets, these should reflect the development of another “bricks and mortar” business. As such, we believe it might be possible that the business activities we see in Shujia might incorporate certain activities that were nominally for the Sharing Schools.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ed123500-1e7b-4c3e-9cd7-862559f82ac8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.72, "x": 0.14, "y": 0.2 }, "kind": "list", "text": "In 2015, Guangzhou Qingqing reported $3.5 million (Rmb 22.2 million) in revenue. The next year, its revenue dropped to almost zero; however, Qingqing continued to operate its online tutor matching business in Guangzhou. Although we do not believe Guangzhou Qingqing has a robust business, it did not disappear - it is active even today. We suspect that in 2016, its revenues might have been temporarily moved over to Shujia.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "fd2cc44f-d2e9-4b9c-9de4-b7e8ce1aaac0", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "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": 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 }