BRIDGE REPORT
TAC Co., Ltd. (4319)
Hiroaki Saito, President
Hiroaki Saito, President
Corporate Profile
Company
TAC Co., Ltd.
Code No.
4319
Exchange
1st Section Tokyo Stock Exchange
Industry
Services
President
Hiroaki Saito
HQ
3-2-18 Misaki-cho, Chiyoda-ku, Tokyo
Business
Description
TAC provides education and training for both university students and working people seeking to obtain various certifications and qualifications based upon its fundamental corporate philosophy of "cultivating professionals."
Year-end
March
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥208 18,503,932 shares ¥3.848 billion 4.8% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥4.00 1.9% ¥29.72 11.2x ¥236.95 0.8x
* Stock price as of close on June 8, 2016. Number of shares outstanding as of most recent quarter end does not include treasury shares.
 
Consolidated Earnings Trends
Fiscal Year Net Sales Operating Income Ordinary Income Net
Income
EPS Dividends
March 2010 23,991 623 442 40 2.20 17.00
March 2011 24,575 465 283 -244 - 20.00
March 2012 22,578 -606 -530 -799 - 0.00
March 2013 20,999 136 377 977 53.63 0.00
March 2014 20,526 1,034 1,299 816 44.68 1.00
March 2015 19,537 140 404 208 11.24 1.00
March 2016 20,007 605 635 213 11.54 2.00
March 2017 Est. 20,500 830 770 550 29.72 4.00
* Estimates are those of the Company. The definition for net income has been changed to net income attributable to parent company shareholders (Abbreviated as Parent Company Net Income)
 
We present this Bridge Report reviewing the fiscal year March 2016 earnings results and other information about TAC.
 
Key Points
 
 
 
Company Overview
 
TAC Co., Ltd. is known as the "TAC, The Certification School" where university students and working people come to study to increase their chances of passing tests for various certifications and qualifications. The Company operates schools throughout Japan that educate students and adults in academic fields necessary to pass tests to become Certified Public Accountants, Licensed Tax Accountants, Real Estate Appraisers, Certified Social Insurance and Labor Consultant, Bar Examination, Judicial Scriveners and other professional occupations. In addition, TAC also provides various training programs for corporate clients and conducts publishing business as well.
 
 
<Corporate History>
TAC was established in December 1980 as a school providing instructions to people seeking to obtain certifications and qualifications through examinations, including courses for the Certified Public Accountant, Bookkeeper, and Licensed Tax Accountant examinations. In October 2001, TAC listed its shares on the Over The Counter Market, and later moved its shares to the Second Section of the Tokyo Stock Exchange in January 2003 and then to the First Section in March 2004. TAC acquired KSS Co., Ltd. (Formerly known as Waseda Management Publishing), which conducts certification and qualification acquisition support services including the provision of preparatory courses for Bar Exam, Judicial Scrivener, Patent Attorney, Level-1 Civil Service Examination, Special Personnel of the MOFA in September 2009. Through the addition of this company, TAC has been able to fortify its strengths in the accounting area by adding certification preparatory courses in the legal area, and to round out its service lineup with courses in the public officer area. In December 2013, the Company formed a collaborative agreement that included sharing of capital with Zoshinkai Publishers Co., Ltd.for work in the development of a correspondence course education service for elementary, junior and senior high school students. Furthermore, other M&A activities were conducted in June 2014 to gain entry into the medical claims processing area.
 
<Strengths>
(1) Detailed Response to Changes, Revisions in Examination System Laws
Since the founding of the Company, TAC instructors have made revisions to the text materials used in its courses every year, and this ability to respond to changes and revisions in the examination and legal systems is a distinguishing feature and strength of TAC. For a company like TAC with sales approaching ¥20.0 billion, absorbing the costs of updating text materials on an annual basis is possible. However, new entrants and smaller players in the market have a much more difficult time absorbing the costs of updating teaching materials. Other strengths of TAC include its knowhow and efficiency accumulated over the history of its operations in providing the most updated information to students in its courses.
 
(2) Full Scale Lineup and Aggressive Course Development
TAC has risen to become the top player in the industry through its aggressive efforts to develop courses in new areas, including those targeting university students, and it has become the first company within its industry to list its shares. Along with the acquisition of W Seminar's certification and qualification acquisition support business in 2009, TAC has been able to fortify its weakness in the areas of legal and Public Officer related courses. Consequently, the Company now boasts of a strong business model comprised of the three main pillars of Accounting (Certified Public Accountant, Licensed Tax Accountant and Bookkeeping), Legal and Public Officer related certification and qualification acquisition support courses...
 
(3) Providing Innovative Services with a Focus upon Students
Innovative services are yet another strength of TAC. TAC was the first school in the certification and qualification acquisition support services market to introduce educational media and provide students with ability to choose which instructor they would like to study under. This corporate focus upon satisfying the needs of students is reflected in the quality of the text materials offered and has contributed to the establishment of a strong brand reputation as "TAC, The Certification School."
 
 
 
ROE remained nearly unchanged from the previous term. And despite a relatively high level of leverage, ROE remains low. Therefore, the key to raising ROE appears to be improving the net income to sales margin.
 
 
Fiscal Year March 2016 Earnings Overview
 
Regarding Sales
Students applying for courses are required to pay tuitions at the time of their initial application (TAC calls these fees as advance pre-adjustment sales or sales on an accrual basis), which are then booked on the balance sheet as a liability under the title "tuition advance." These tuition advance are then written down and booked as sales in each month that educational services are provided to the student (TAC calls these tuition advance post-adjustment sales or sales on an accrual basis). While sales booked on the income statement are "sales on a cash basis", the actual indicator of the sales conditions of the Company in the term are considered to be the "sales on a cash basis" (The fact that cash and equivalents are influenced strongly by the sales on a cash basis is a characteristic that is shared with companies that take orders) and they are deemed to be a leading indicator for sales on an accrual basis. Therefore, TAC management identifies this "sales on a cash basis" as a key management indicator.
 
Regarding Seasonal Characteristics
Examinations for the majority of certification courses are held from the second (July to September) to third quarters (October - December), and core courses, especially those for Certified Public Accountants and Licensed Tax Accountants, fall into the time frame for examinations in the following year. At the same time, all courses fall into the fourth (January to March) and first quarters (April to June).
Despite an increase in sales on a cash basis and sales on an accrual basis during the second and third quarters, tuition advance are written down and booked depending upon enrollment period and gross margin is profoundly influenced because of the booking a fixed level of expenses every month. In the fourth and first quarters, these tuition advance are then written down and booked as sales in each month, causing gross margin to increase.
 
 
Higher Sales, Large Increase in Profits
Sales on a cash basis and accrual basis rose by 6.7% and 2.4% year-on-year to ¥20.103 and ¥10.007 billion respectively. Favorable trends in finance and accounting, finance and real estate, information, and international area curriculum allowed them to grow, along with the full year contributions from two companies operating in the area of medicine and public welfare acquired through M&A in the Kansai region and subsequently turned into subsidiaries. Instruction fees within cost of sales and rental fees within sales general and administrative expenses declined, allowing operating income to rise by a large margin of 331.0% year-on-year to ¥605 million. At the same time, the booking of amortization of goodwill for Medical Office Staffing Kansai Co., Ltd. restrained net income to a smaller margin of growth of 2.6% year-on-year to ¥213 million.
 
 
<Personnel Education>
Sales rose and the operating loss contracted by a large margin. Classes in Certified Public Accountant, Real Estate Appraiser, Real Estate Transaction Manager, Certified Social Insurance and Labor Consultant, Public Officer and other fields exceeded the previous year. At the same time, declines were recorded in classes for Licensed Tax Accountants due to the delay in announcement of test results by one week and Judicial Scriveners due to the continued decline in number of people applying for examinations. Ongoing efforts to reduce costs including outsourcing expenses for instruction and course material creation were conducted.
 
<Corporate Training>
Both sales and profits rose. Corporate training, new hire training, new employee training and occupation class specific training orders continued to trend favorably. .By class, Real Estate Transaction Manager, Business School, Securities Analyst, Information Processing, Comp TIA all exceeded the previous year's levels. And while classes in Licensed Tax Accountant and Public Officer areas held at affiliated school exceeded the previous year's levels, Licensed Tax Accountant course fell. Seminars held by universities for Bookkeeping, Licensed Tax Accountant, and Public Officer all rose from the previous year, but seminars for the Bar Examination and job hunting students fell. Demand for training programs consigned by local government declined along with the recovery in the economy, and extraordinary demand for the "Mahojin" tax filing software abated in the wake of the introduction of the consumption tax hike last year. Moreover, the sales representative contract for "Mahojin" tax filing software formed between TAC and H.A.N.D. Inc. was dissolved on March 31, 2016.
 
<Publishing>
Double digit growth in sales and profits were recorded. TAC Publishing Sales Co., Ltd. received high regard for its full color publications for Bookkeeping, Real Estate Transaction Manager, Financial Planning, Certified Social Insurance and Labor Consultant, which are easy to read and understand. In addition, a new format publication that provides details about the "My Number" tax identification system was released. Moreover, TAC developed a response to revisions in the examination for Bookkeeping Certification as part of its strategy of operating a website to provide total support for Bookkeepers, and a website for examination takers seeking to acquire certification. Through measures like these, TAC also seeks to provide other means of support for examination takers other than publications. By class categories, Bookkeeping, Real Estate Transaction Manager, Certified Social Insurance and Labor Consultant, and Financial Planner were especially strong. W Publishing saw higher sales on the back of revisions in publications for corporate law and corporate trademarks, Bar Examination and Judicial Scriveners. With regards to sales promotional activities, the provision of detailed information through "TAC Teikibin" (TAC regularly scheduled notifications) acted as sales support for book stores. At the same time, a fortified collaboration with book stores was conducted to provide detailed advice on how to effectively use bookshelf space within the stores for "TAC Group Certification Festival". Efforts were made to fortify the lineup of "Dokugaku Dojo" (Independent study courses) to further expand sales, and the direct sales website (Cyber book store) was renovated in December.
 
<Manpower Business>
Both sales and profits grew. Strong demand for human resources from corporate auditing and accounting firms led to strong demand for employment opportunity presentations for Certified Public Accountant and Licensed Tax Accountants. At the same time, human resources advertising sales rose on the back of strong orders for the newly started Licensed Tax Accountant promotion video. While headhunting service sales had trended lower than the previous year until the second quarter, TAC was able to surpass the previous year's levels on the back of strong attendance to employment seminars for Licensed Tax Accountant examination takers held during the summer, and from subsequent successful job seeker introductions from the fall onwards. The rise in interest in becoming a full time employee of hiring companies along with the recovery in the economy, and the subsequent low capacity utilization rates of dispatched staff caused sales of the manpower dispatching services to decline. TAC is implementing promotional efforts in the medical related human resources area including the opening of a medical office worker and job change website "TAC Medical Work Navigation". However, gaps between employment conditions offered by hospitals and clinics and job seeking medical office and related workers are a major issue, in addition to difficulties in securing access to job seeking registrants.
 
 
<Market Overview>
The number of people applying for examinations for various certifications and qualifications during 2015 rose by a slight margin from 2.510 million in the previous year to 2.513 million, marking the first increase in five years. An overview of the main certification markets is provided below.
 
The number of Bookkeeping applicants overall rose for the first time in two years.
While the number of Certified Public Accountant applicants declined by 6.3% year-on-year, the employment environment turned positive and a recovery is anticipated in the coming term.
Demand for Licensed Tax Accountant Certification continues to suffer a prolonged period of weak demand.
 
Finance and Accounting
Sales grew. Regarding Certified Public Accounting examinations, major corporate auditing firms have continued to aggressively hire new staff with nearly all persons passing the examination being hired. At the same time, TAC saw a large increase in the number of applicants for entry level courses. The number of applicants for the repeat examination applicant courses which had declined dramatically during the previous term continued to trend weakly. However, the number of applicants for single courses is on the rise. An increase in the number of applicants for Bookkeeping Certification contributed to higher sales. The characteristics of "easy to understand", "something everyone wanted!" and "easily understood" have contributed to favorable sales of Bookkeeping related publications.
 
Management and Taxation
Sales declined. The number of applicants for the Licensed Tax Accountant examination continued to trend weakly and declined by 5.5% year-on-year to 47,145 (According to National Tax Agency as of December 18, 2015). At the same time, the number of TAC course applicants also declined. While demand for Small Business Consultant courses remained weak, courses for persons sitting for the second level examination courses and sales of related course material publications trended favorably.
 
Finance and Real Estate
Sales rose by double digits. Courses in real estate related curriculum including Real Estate Transaction Manager, Real Estate Appraiser, Condominium Manager, Registered Architect; and others trended favorably on the back of the recovery in the economy and increased activity within the real estate market. In addition, demand for finance related courses including Securities Analysts, Financial Planners and Business School related curriculum trended strongly.
 
Law
Sales declined. The universal course called "4A Fundamental Course" for the Bar Examination, which has reduced the amount of superfluous information, has received strong evaluation from a wide range of examination takers including beginners and experienced examination takers. Also, optional courses which cover analysis of historical examination questions has also seen strong demand and the number of course participants are growing. In addition, courses for Administrative Scriveners trended favorably, but courses for Judicial Scriveners, Patent Attorneys and Registered Customs Specialist trended weakly.
 
Public Officer and Labor
Sales declined. The "My Number" tax identification system and other topical issues concerning Certified Social Insurance and Labor Consultant has focused attention on this job area and contributed to an increase in the number of related course applicants. The revised full color "Compulsory Text" (TAC Publishing) has been well received, and sales on a cash basis of overall Certified Social Insurance and Labor Consultant related curriculum rose, but sales on an accrual basis declined. Public Officer related courses including National Public Employees in the Regular Service and Senior Officials of Local Government courses suffered from a decline in the number of Japanese seeking to become Public Officer due to an improvement in the private sector employment conditions. Sales on a cash basis increased due to strengthened and early sales promotions for and an increase in the new lineup of courses for university students. However, sales of National Government Public Officer Comprehensive Work and Foreign Affairs Specific Courses declined.
 
Information Technology and International
Sales increased. While Information Technology (IT) Passport and Basic Information courses for personal students trended weakly, Applied Information Courses responding to changes in the examination outlines making it easier to sit for the exam and the newly started "Information Security Management Examination" courses implemented from spring 2016 trended favorably. There were 22,903 applicants for the first "Information Security Management Examination". Training courses for corporate clients remained basically in line with the previous year's level, and course sales overall rose. In addition, corporate training within the Comp TIA courses trended favorably. Sales on a cash basis of United States Certified Public Accountant, Tax Accountants (EA), Certified Management Accountants (USCMA), and TOEIC (R) TEST courses also rose.
 
Medical and Welfare
Sales rose by a large margin on the back of the full contribution from earnings of the three subsidiaries. Campaigns to secure job seeking workers (Registrants), individual consultations, and internet media advertising were conducted within the medical related human resources services. At the same time, efforts were made to strengthen marketing through capital and operational collaboration with TMMC Co., Ltd. but Medical Office Staffing Kansai Co., Ltd. and TAC Medical Office Staffing Co., Ltd. despite continued difficult operating conditions.
 
Others
Sales increased. Sales declined due to the disappearance of extraordinary demand for "Mahojin" tax filing software caused by the hike in the consumption tax in the previous term. At the same time, TAC Profession Bank Co., Ltd., which provides human resources services, benefitted from strong demand for Certified Public Accountant and Licensed Tax Accountants within the accounting industry. At the same time, orders for promotional videos for Licensed Tax Accountant corporations trended favorably, and the sales of jobs offered advertising grew. Head hunting sales trended strongly during the second half and allowed sales to grow, but human resources dispatching sales stagnated.
 
 
During fiscal year March 2016, the number of students rose by 11.2% year-on-year to 216,359 despite the negative effect caused by the disappearance of demand caused by the consumption tax hike in the previous year. The number of both individual and corporate students increased. Large increases in both individual and corporate student numbers were seen in the Real Estate Appraiser, Real Estate Transaction Manager, Public Officer (National Public Employees in the Regular Service and Senior Officials of Local Government), and Information Processing courses, and demand for Bookkeeping Certification, Securities Analyst, Condominium Management, Cop TIA, and Bar Examination courses also rose. At the same time, the number of students sitting for Certified Public Accountant, Certified Social Insurance and Labor Consultant, Judicial Scrivener and Administrative Scrivener courses declined. Corporate students applying for correspondence course training and seminars held at educational institutions grew, but the number of affiliated educational institutions providing seminars remained in line with the previous year and consigned training declined by a large margin due to a recovery in the overall economy.
 
 
Increases in cash and receivables contributed to a ¥701 million rise in current assets at the end of the current term from the end of the previous term. Declines in long term and security deposits contributed to a ¥373 million decline in noncurrent assets and a ¥327 million decline in total assets to ¥21.632 billion at the end of fiscal year March 2016. Interest bearing liabilities fell by ¥338 million, but a ¥117 million rise in tuition advance contributed to a ¥174 million rise in total liabilities to ¥17.091 billion. Net assets rose by ¥153 million to ¥4.540 billion on the back of an increase in retained earnings. Consequently, capital adequacy ratio rose by 0.4% points from the end of the previous term to 21.0% at the end of the current term.
 
 
An increase in profits and tuition advance allowed operating cash flow to turn to a net inflow from a net outflow in the previous term. Payments for acquisition of tangible fixed assets declined and allowed the margin of net outflow of investing cash flow to contract and free cash flow to turn to a net inflow from a net outflow in the previous term. Income from long term debt declined, causing a net inflow of financing cash flow seen in the previous term to turn to a net outflow in the current term. Subsequent to these changes, cash position rose.
 
 
Fiscal Year March 2017 Earnings Estimates
 
 
TAC Estimates Call for Increases in Sales and Profits
TAC earnings estimates call for sales on a cash basis to rise by 2.5% or ¥496 million year-on-year to ¥20.6 billion. A ¥300 million loss of sales arising from termination of sales of the "Mahojin" tax filing software is expected to be offset, bringing the actual increase in sales to about ¥800 after this factor is excluded. Operating income is expected to rise by 37.0% year-on-year to ¥830 million on the back of ongoing costs controls in cost of sales and sales, general and administrative expenses. Dividends are expected to be raised by ¥2 per share to ¥4.00, for an anticipated dividend payout ratio of 13.5%.
 
(2) Main Measures
New Sources of Sales Cultivated
<New Course Contribution to Earnings>
Courses for Architecture newly started in November 2012 have come to be highly regarded for its "superior instructors", "development of original and focused learning materials", "curriculum that places an emphasis on instruction designed to pass examinations" and "superior pricing to competing schools". Consequently, a large increase in course applicants was recorded. TAC will leverage its advantageous position against the backdrop of the highly active real estate market to further expand its sales. In addition, courses for Teacher Recruitment Examination newly launched in October 2013 have been implemented on a regionally specific basis within the Kanto region and will be expanded to the Kansai region.
 
<Cultivating New Sources of Sales>
TAC has implemented a strategy of expanding its foreign language services by newly establishing the "foreign language marketing division" in April 2014. The Company has leveraged its extensive knowhow accumulated through the long years of operation in the education business in the development of original teaching materials and curriculum, dispatched instructor training (For TOEIC and other tests), business English skills training and presentation seminars, newly hired employee training and other courses. TAC has established a strong track record in its schools and leveraged its extensive network of corporate and university clients to provide training for corporate clients.

The online educational service application "Onsuku.jp" (Online School Co., Ltd.) launched in January 2014 currently provides iOS and Android applications for courses in "3rd Level Bookkeeping", "3rd Level Financial Planner Skills", "3rd Level Business and Legal Skills Certification", "2nd Level Registered Representative" "Real Estate Transaction Manager", "3rd Level Seller", "Health Supervisor", "Hazardous Materials Engineer Level 4" and others. This service is trending favorably as reflected by the total number of downloads of 120,000 as of March 2016, and registered users (Aggregated number to April 2016) of 25,936. Efforts are being made to fortify contents, with some of "Onsuku.jp" services offered on a monthly fixed rate basis (¥980 per month) from July 21, 2015.
 
Investments for Growth
TAC will continue to pursue M&A projects from which it deems it can derive synergies.
 
Cost Controls
Efforts will be made to reduce costs of Online School Co. Ltd. by internalizing operations, optimizing the scale of schools, and performing ongoing reviews of various costs.
 
 
Conclusions
 
While both sales and profits are forecast to grow in the coming term, profitability remains at a low level. Consequently, TAC will conduct efforts to strengthen its profit generating structure based upon an outlook for a bottoming in the accounting market and other positive external factors. Investors appear to be most excited about top line growth given the scale of TAC's business. We look forward to effective synergies resulting from Zoshinkai Publishers Co., Ltd. and other M&A related activities, though we haven't been able to observe statements regarding the matter.
 
 
Disclaimer
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
Copyright(C) 2016 Investment Bridge Co., Ltd. All Rights Reserved.
 
 
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