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
Service
President
Hiroaki Saito
HQ Address
Misaki-cho 3-2-18, 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 "develop professional."
Year-end
March
Homepage
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥207 18,503,932 shares ¥3.830 billion 4.8% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥4.00 1.9% ¥29.72 7.0x ¥236.95 0.9x
* Stock price as of close on November 11, 2016. Number of shares outstanding as of most recent quarter end do 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 first half of fiscal year March 2017 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 certification and Public Officer tests to become Certified Public Accountants, Licensed Tax Accountant, 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 instruction to people seeking to obtain certifications and qualifications through examinations, including courses for the Certified Public Accountants, 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 Examination, Judicial Scrivener, Patent Attorney, Level-1 Civil Service, 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 of 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 cornerstones of accounting (Certified Public Accountants, Licensed Tax Accountant and Bookkeeper), 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 enable students 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.
 
 
First Half of Fiscal Year March 2017 Earnings Overview
 
Regarding Sales
Students applying for courses are required to pay tuitions at the time of their initial application (TAC calls these fees tuition advance pre-adjustment sales or sales on a cash basis), which are then booked on the balance sheet as a liability under the title "tuition advance." These tuition advances are then written down and booked as sales in the month that educational services were provided to the student (TAC calls these fees tuition advance pre-adjustment sales or sales on an accrual basis). While sales booked on the income statement are "sales on an accrual basis(tuition advance pre-adjustment sales)", the actual indicator of the sales conditions of the Company in the term are considered to be the "sales on a cash basis(tuition advance pre-adjustment sales)" (The fact that cash and equivalents are influenced strongly by the sales on a cash income is a characteristic that is shared with companies that take orders) and they are deemed to be a leading indicator for actual sales. Therefore, TAC management identifies this "sales on a cash basis (tuition advance pre-adjustment sales)" 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 Account receivable-trade sales during the second and third quarters, tuition advances are written down and booked depending upon enrollment period and gross margin is profoundly influenced because of 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.
 
 
Sales Rise, but Operating Income Declines
Sales on a cash basis and sales on an accrual basis rose by 3.0% and 2.2% year-on-year to ¥10.791 and ¥10.824 billion respectively. Finance and accounting, financial service and real estate, information and international, and medical and welfare areas all trended favorably. At the same time, operating income declined by 7.0% year-on-year to ¥979 million due to the inability to absorb increases in labor, commercial outsourcing, advertising and other sales general and administrative expenses. The dissolution of a transaction contract with a general sales agent for "Mahojin" tax filing software led to the payment of settlement money which was booked as an extraordinary income and allowed net income to rise by 7.3% year-on-year to ¥692 million.
 
 
 
Effective cost controls allowed operating expenses including instructor fees, course material creation outsourcing fees, rent and others to decline by 1.7% year-on-year to ¥6.227 billion.
 
 
<Publishing>
Double digit growth in sales and double digit declines in operating income.
(TAC Publishing Sales Co., Ltd.)
Bookkeeping, Real Estate Transaction Manager, Financial Planner courses require large amounts of materials, and full color materials that are easy to read and use are factors behind the growth in sales.
Publications for welfare related certifications including Care managers and Social workers trended strongly.
As a new service area other than text materials for certifications, "Otona Tabi Premium" (Adult Travel Premium) began being published in May 2016 and is trending favorably (Initial runs of 10 titles, with a total of 30 titles anticipated).
By course, sales of Bookkeeping, Real Estate Transaction Manager, Financial Planner, and Social Worker curriculum rose by large margins.
 
(W Publishing)
The demand created by revisions to Corporate Law and Commercial Registration Law has subsided, and sales declined.
 
TAC Publishing and Waseda Keiei Publishing conducted efforts to raise their brand recognition by participating in the Tokyo International Book Fair. While sales rose by a large margin, operating income declined by double digits due to increases in production and marketing expenses associated with the publication of "Otona Tabi Premium."
 
<Manpower Business>
Both sales and profits rose.
Employment opportunity presentations trended favorably due to strong demand for human resources including Certified Public Accountants and Licensed Tax Accountants within the corporate auditing and accounting industries.
Orders for corporate promotional video production, which started last year, have trended strongly.
Headhunting services saw higher sales, and worker dispatching sales remained in line with the previous term.
In the medical expense statements check services, sales of Medical Office Staffing Kansai Co., Ltd remained in line with the previous term, but sales of TAC Medical Office Staffing Co., Ltd continued to see difficult conditions.
TAC Medical Office Staffing Co., Ltd started nurse employment placement service over "TAC Nurse Navigation" website opened in June 2016 as a means of expanding its headhunting services.
 
 
<Market Overview>
The number of people applying for examinations for various certifications and qualifications during 2015 rose by a slight margin to 2.513 million from 2.510 million in the previous year, marking the first increase in five years. An overview of the main certification markets is provided below.
The number of Bookkeeping certification 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, Accounting
Sales grew.
(Certified Public Accountant Examination Course)
Sales on a cash basis fell by 2.7% year-on-year.
Nearly all candidates who have successfully passed their examinations are benefitting from the favorable hiring environment and being hired, as major corporate auditing companies are making aggressive efforts to hire new staff.
While the number of people taking the short answer examination (Based on massed total) held twice a year has declined during in the past five years since peaking in 2010, the number of examination takers rose by 76 people year-on-year for the first increase in six years to 10,256 in the fiscal year 2016.
Against this backdrop and despite favorable trends in the number of students applying for introductory courses, demand for examination preparatory courses designed for examination takers trended weakly.
 
(Bookkeeping Certification Course)
Sales on a cash basis rose by 21.3% year-on-year.
A recovery in the number of students applying for the Bookkeeping certification examination and increase in course applicants were recorded due to revisions in questions making the Bookkeeper skill test slightly more difficult.
Demand for text materials designed for examinations including the "Easy to Understand Bookkeeper Skills" and "Bookkeeping Skills Text That Everyone Wanted" trended strongly.
 
Management, Taxation Affairs
Sales on a cash basis remained in line with the previous year's levels.
(Licensed Tax Accountant Examination Course)
The downward trend in the number of examination applicants continued as reflected by the decline of 6.6% year-on-year to 44,044 (Provisional data of the National Tax Agency).
While various measures have been taken to revise course text and curriculum based on the actual examination questions to allow Bookkeeper certification examination course participants to smoothly progress to the Licensed Tax Accountant courses , the impact of the overall decline in number of examination applications was large and caused sales on a cash basis to decline by 6.6% year-on-year.
 
(Small and Medium Enterprise Management Consultant Course)
Since declining for five consecutive years after peaking in the fiscal year 2010, the number of examination applicants rose for the first time in six years during the fiscal year 2016.
The low passage rates of the primary examination implemented in August contributed to a favorable demand for upper level courses for applicants preparing to take the examination in the coming year.
While the number of new students of entry level courses failed to surpass the previous year's levels, students taking courses on an ongoing basis allowed sales on a cash basis to remain in line with the previous year's levels.
 
Financial service, Real Estate
Strength in numerous courses allowed sales to rise by double digits.
 
Law
Sales remained in line with the previous year.
(Bar Examination Courses)
The number of applicants for the preliminary test of the Bar Examination rose from 12,543 in the previous year to 12,767 in 2016 in reflection of the strong demand of applicants seeking to prepare for the Bar Examination by taking the preliminary examination. TAC supports a wide range of examination applicants through its "4A Fundamental Course".
Demand for courses analyzing questions in past preliminary examinations and trial tests trended favorably.
Facilities to make "live broadcasts of classes" taught by popular instructors to remote locations (Yokohama and Osaka Schools) have been established and are designed to increase student numbers.
 
(Judicial Scrivener, Administrative Scrivener Courses)
Demand for entry and advanced level courses was weak. Sales on a cash basis of entry and advanced level courses fell by 17.9% and 7.6% year-on-year respectively.
 
(Patent Attorney Courses)
Various efforts including sales campaigns and promotions to secure students for courses allowed sales on a cash basis to rise by 7.3% year-on-year.
 
Public Officers, Labor
Sales grew by a slight margin.
(Certified Social Insurance and Labor Consultant Courses)
Examination applicant numbers continue to decline, but revisions of curriculum, various campaigns implemented to secure students, last minute cram courses and other course options contributed to favorable demand from students and strong sales of publications. Therefore sales on a cash basis rose by 1.9% year-on-year.
 
(Public Officer Courses)
The number of comprehensive government worker examination applicants continued to decline, but grew during 2015 for the first time in four years and rose for the second consecutive year in 2016.
This increase allowed courses for comprehensive government workers and Special Personnel of the MOFA to trend favorably. National Public Employees in the Regular Service and Senior Officials of Local Government course also grew steadily on the back of the continued popularity of Public Officers as a profession and allowed sales on a cash basis to rise by 4.9% year-on-year.
However, tuition advance adjustments declined by a large 74.4% year-on-year margin causing sales on an accrual basis to remain in line with the previous term.
 
Information, International
Sales rose.
(IT Specialist Courses)
Beginning with Information Security Management courses for individuals started in spring 2016, applicant numbers for security related courses have trended favorably.
At the same time, IT passport applicants declined from the previous year.
Despite a slight decline in corporate training from the previous year's levels, sales on a cash basis of courses overall rose by 4.1% year-on-year.
 
(US Certified Public Accountants and US Licensed Tax Accountant (EA), US Certified Management Accountant, Test of English for International Communication (TOEIC), and Other International Certifications)
Ahead of the implementation of a new US Certified Public Accountants testing system in April 2017, applicants postponed applying for courses and sales on a cash basis declined by 5.0% year-on-year.
 
(Comp TIA Courses)
Trended in line with the previous term.
 
Medical, Welfare
Large increase in sales.
Medical Office Staffing Kansai Co., Ltd. which provides medical office staff dispatching services in the Kansai (Osaka and surrounding) regions, saw a 1.6% year-on-year decline in sales.
TAC Medical Office Staffing Co., Ltd. which provides medical office staff dispatching services in the Kanto (Tokyo and surrounding) regions, encountered difficult conditions in the human resources matching services. Furthermore, it may take further time and effort before this business gets up to full speed.
The medical administrative work courses started from January 2015 designed to train medical office staff have been able to secure a constant level of students.
 
Others
Double digit sales growth has been recorded.
(Manpower Business)
In addition to increases in sales of advertising, including employment opportunity presentations targeting the accounting industry held during the summer, headhunting services also trended strongly on the back of shortages of accounting related personnel. Sales of personnel dispatching services remained in line with the previous term.
 
(Others)
Sales of TACBOOK rose by a large 95.6% year-on-year margin due in part to the contributions of "Otona Tabi Premium."
Sales of the "Mahojin" tax filing software were concluded on March 31, 2016, along with the dissolution of the sales agreement with sales agent H.A.N.D., Inc.
 
 
Based upon the favorable trends in seminars held within schools and applicants for courses, the total number of students during the first half of fiscal year March 2017 rose by 5.9% year-on-year to 133,730.
The number of individual and corporate students rose by 6.1% and 5.4% or 5,227 and 2,208 year-on-year to 90,792 and 42,938 respectively.
 
Trends by Course (Combined Individual and Corporate)
<Increases>
Courses for Public Officers (National Public Employees in the Regular Service and Senior Officials of Local Government), Bookkeeping certification, Residential Property Transaction, and Financial Planner rose by 19.5%, 13.5%, 11.9% and 5.6% year-on-year respectively.

<Declines>
Courses for Licensed Tax Accountants, Judicial Scriveners, and Business Schools fell by 6.6%, 7.4% and 17.2% year-on-year respectively. While corporate students attending in-university seminars rose 19.0%, corporate client services including correspondence type training, affiliated schools courses, and consigned training declined by 1.4%, 2.3% and 15.0% year-on-year respectively.
 
 
 
Current assets rose by ¥1.618 billion from the end of the previous fiscal year due to increases in cash and equivalents, and receivables. An increase in investment securities contributed to increases in fixed assets of ¥30 million and in total assets of ¥1.649 billion to ¥23.281 billion. Interest bearing liabilities rose by ¥1.157 billion and total liabilities by ¥1.013 billion to ¥18.105 billion. Net assets rose by ¥635 million to ¥5.176 billion on the back of an increase in retained earnings. Consequent to these developments, capital adequacy ratio rose by 1.2% points from the end of the previous fiscal year to 22.2%.
 
 
In addition to income derived from redemption of marketable securities, the running down of time deposits allowed investing cash flow to turn form a net outflow in the previous first half to a net inflow during the current first half. At the same time, increases in accounts receivables caused operating cash flow to turn to a net outflow and led the margin of net inflow of free cash flow to contract. Increases in short term debt contributed to an expansion in the net inflow of financing cash flow. Consequent to these developments, cash position rose.
 
 
Fiscal Year March 2017 Earnings Estimates
 
 
Earnings Estimates Remain Unchanged, Call for Higher Sales and Profits
TAC's outstanding earnings estimates remain unchanged and call for a ¥496 million or 2.5% year-on-year increase in sales on a cash basis to ¥20.6 billion. After the loss of sales of ¥300 million arising from the conclusion of sales of "Mahojin" tax filing software is considered, sales are expected to rise by ¥800 million. Operating income is expected to rise by 37.0% year-on-year to ¥830 million on the back of continued strict cost controls and management of cost of sales and sales, general and administrative expenses. Dividend payment is expected to be raised by ¥2 to ¥4.00 per share, for an anticipated dividend payout ratio of 13.5%.
 
(2) Strategies in the Medium to Long Term
① New Business Development, Cost Controls
Amidst changing perspectives of certifications and employment, the need to be able to respond flexibly by assessing the diversifying needs of consumers in a timely fashion is crucial. In addition to conducting ongoing fine tuning of existing businesses (For example, implementation of "live broadcasts" of Bar Examination courses conducted by popular instructor), TAC will also conduct efforts to take on challenges of developing businesses in new areas and to continue to implement cost controls.

② Making Newly Started Courses Profitable
TAC has been able to steadily grow sales and expand the number of students applying for the Architect courses, newly commenced from November 2012, by three times during the past two years on the back of its lineup of highly skilled instructors, unique text materials, strong track record in examination passage rates, and superior value for money. In addition, TAC has expanded the regional coverage area of its Teacher's Certificate Exam courses. Furthermore, the Company has also begun employment services for nurses within its medical administrative work business.
 
 
Conclusions
 
While improvements in sales are difficult to confirm based upon sales and operating income trends of the Personnel Education business on a quarterly basis, steady improvements in operating income have been confirmed. Sales are beginning to expand due to a bottoming in the Certified Public Accountants market and newly started Architect courses. And while TAC's share price has begun to recover after a prolonged period of stagnation, concrete results of the various M&A activities undertaken during recent years and a solid recovery in near-term earnings will be required for the share price to sustain upward momentum.
 
 
 
<Reference: Regarding Corporate Governance>
 
 
◎ Corporate Governance Report
The company submitted the latest corporate governance report on Jun. 29, 2016.
 
 
 
 
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) 2017 Investment Bridge Co., Ltd. All Rights Reserved.
 
 
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