| TAC Co., Ltd. (4319) |
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Company |
TAC Co., Ltd. |
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Code No. |
4319 |
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Exchange |
1st Section Tokyo Stock Exchange |
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Industry |
Services |
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President |
Hiroaki Saito |
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HQ |
Misaki-cho 3-2-18, Chiyoda-ku, Tokyo |
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Year-end |
March |
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URL |
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* Stock price as of close on November 12, 2014. Number of shares outstanding as of most recent quarter end do not include treasury shares.
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* Estimates are those of the Company.
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| Key Points |
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| Company Overview |
 <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 Accountant , Bookkeeper , and Licensed Tax Accountant examinations. In October 2001, TAC listed its shares on the Over The Counter Market, and 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 realm by adding certification preparatory courses in the legal realm, and to round out its service lineup with courses in the civil servant realm. In December 2013, the Company formed a collaborative agreement that included capital participation with Zoshinkai Publishers Co., Ltd. for work in the development of a correspondence course education services 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 realm.
<Strengths>
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, but new entrants and smaller players in the market have a much more difficult time absorbing the costs of updating their teaching materials. Other strengths of TAC include its know-how and efficiency accumulated over the history of its operations in providing the most updated information to students in its courses.
(1) Detailed Response to Changes, Revisions in Examination System, Laws (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 new course realms, including those targeting university students, and it has become the first within its industry to list its shares. And along with the acquisition of W Seminar certification and qualification acquisition support business in 2009, TAC has been able to fortify its weakness in the realms 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 Accountant , Licensed Tax Accountant and Bookkeeping ), legal, and civil servant 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."
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| First Half of Fiscal Year March 2015 Earnings Results |
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Regarding Sales
Students applying to attend courses are required to pay tuitions for the courses at the time of their initial application (TAC calls these fees as prepayment adjusted 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 advance are then written down and booked as sales in each month that educational services are provided to the student (TAC calls these sales post prepayment adjusted sales or sales on an accrual basis ). While sales booked on the income statement are "sales on an accrual 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 cash based sales 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 " as a key management indicator.
 Negative Impact of Consumption Tax Hike Large, Sales and Profits Decline Despite Cost Reduction Efforts
Both cash basis and accrual basis sales declined by 9.6% and 6.7% year-on-year to ¥9.691 and ¥10.361 billion respectively. The rush to beat the hike in the consumption tax is estimated to have caused a ¥573 million increase in the previous term which in turn led to a decline during the current term. Despite a 1.6% year-on-year decline in cost of sales of ¥99 million through reductions in instructor fees, sales, general and administrative expenses remained around similar levels as the same term in the previous year of ¥3.560 billion and contributed to a 47.1% year-on-year decline in operating income to ¥788 million. A ¥213 million profit was seen on the redemption of bonds held due to the weakening of the yen, but interest payment and investment losses by equity method of ¥16 and ¥9 million contributed to declines of about 40% year-on-year in both ordinary and net incomes to ¥933 and ¥574 million respectively.
 <Personal Education>
Sales on a cash basis fell by 13.7% year-on-year to ¥6.295 billion. In the wake of the consumption tax hike from April 1, 2014, applications for Licensed Tax Account , Public Officer , Judicial Scrivener Certified Public Accountant and other courses fell dramatically. Rent, outsourcing for text material creation, instructor fees and other operating expenses have been reduced by 3.2% or ¥213 million year-on-year helping to limit the negative impact of weaker demand, but an operating loss of ¥213 million was still incurred on a cash basis. The performance for the same term of the previous year was an operating profit of ¥569 million. Sales on an accrual basis and operating income fell by 10.1% and 57.3% year-on-year to ¥6.927 billion and ¥418 million respectively.
<Corporate Training>
Sales on a cash basis declined by 3.5% year-on-year to ¥2.220 billion. The corporate training business segment, over half of which is comprised of corporate training, benefited from increased hiring of new employees on the back of so-called "Abenomics," Prime Minister Abe's economic stimulus measures and demand for new employee training trended favorably. However, the appearance of unprofitable projects in rural areas led to a 1.3% year-on-year decline in orders. By various course category, Bookkeeping and Accounting , IT Specialist , and Law related courses trended weakly and declined 4.1%, 12.0% and 7.5% year-on-year respectively, while tax related and CompTIA related courses saw favorable increases of 36.5% and 13.3% year-on-year respectively. Due to the rush to beat the hike in the consumption tax, sales of courses for Licensed Tax Accountant, Judicial Scrivener and Public Officer in the affiliated school business declined by 11.1% year-on-year, and sales of contents provided to regional vocational schools also fell by 18.3% year-on-year for the same reason. The number of affiliated schools stood at 15 as of end September 2014. At the same time, in-university seminar sales rose by 4.3% year-on-year due in part to the improvement in the hiring environment for students and the subsequent increased competition to obtain better results in job seeking activities of students between various universities and colleges. Sales of training programs consigned by local government fell by 1.7% year-on-year, but sales of tax filing application software "Mahojin" rose by 25.5% year-on-year on the back of extraordinary demand created by the updated version to deal with the hike in the consumption tax. At the same time, aggressive anticipatory spending for marketing contributed to the front loading of costs and a 14.2% year-on-year decline in operating income to ¥624 million on a cash sales basis. On an actual sales basis, sales remained flat at ¥2.258 billion while operating income declined by 5.7% year-on-year to ¥661 million.
<Publishing>
Sales grew by 2.9% year-on-year to ¥921 million (This segment does not record prepayments and therefore there is no need to differentiate between sales on a cash basis and sales on an accrual basis ). Inventories were reduced by ¥0.4 billion during the previous term, and inventories are expected to remain under strict control as the number of publications will be restrained. During the first half, the number of publications issued of "TAC Publishing" and "W Publishing" declined from 184 and 63 in the previous first half to 179 and 58 in the current first half. These declines in the total number of publications will be overcome by issuance of more interesting publications and strengthened marketing for publications, including proposal based sales to book stores and direct sales through TAC's direct-to-consumer website Cyber Book Store and Amazon. Following in the footsteps of the successful four color version of text materials for Bookkeeping and FP, a full color version of text books for Real Estate Transaction Manager was launched successfully during the first half. Furthermore, TAC also launched a series of low priced, self study series of publications entitled "Self Study Training Hall (Dokugaku Dojo)" that are designed to induce students to join its courses. While sales rose, the anticipatory expenses of full color printing led to a 16.3% year-over-year decline in operating income to ¥243 million.
<Manpower Business>
Sales rose by 10.7% year-on-year to ¥272 million. The manpower business conducted by the subsidiary TAC Profession Bank Co., Ltd. benefited from improvements in the economy and subsequent increases in the number of workers sought for in general accounting and tax accounting job applications. Consequently, its sales rose by 10.2% year-on-year. At the same time, the headhunting services suffered a marginal decline, and personnel dispatch services also recorded a decline of 34.9% year-on-year in sales due to the shift to hiring of full-time employees. Despite the higher sales, operating income fell by 74.6% year-on-year to ¥15 million due to increases in operating expenses. The medical related personnel dispatch services of Kubo Iryo Co., Ltd. and Iryojimu Staff Kansai Co., Ltd., which were acquired on June 30, 2014, have been consolidated from the first half with the combined sales and operating loss of the two companies amounting to ¥55 and ¥33 million respectively.
 <Market Overview>
The number of people applying for examinations for various certifications and qualifications during 2013 declined by 3.4% year-on-year to 2.620 million, marking the third consecutive year of declines. A review of the conditions during 2014 is provided below.
<Declines>
The number of people taking examinations for Certified Public Accountant , Licensed Tax Accountant and Public Officer(main career track / regular service) declined by 2,300, 5,400 and 2,200 to 10,870, 49,876 and 80,449, respectively. An increase in the number of companies going public accompanying the rise in the stock market contributed to a recovery in demand to hire staff by audit corporations. And despite a slight time lag, demand for Certified Public Accountant also appears to have bottomed. However as we explain later in this report, the strength of the improvement in demand for certification and qualification examinations relative to improvements in pay arising from the recovery in the economy remains unclear. At the same time, the demand to take examinations to become Public Officer is declining because of the growing popularity of employment opportunities at private sector corporations.
<Increases>
The number of people taking examinations for Real Estate Transaction Manager and preliminary examinations to become attorneys rose by 3,700 and 1,300 to 283,343 and 12,622 people respectively. While the number of people attending law schools is on the decline, fortification of the training and education benefits system is acting as a tail wind. In addition, the number of people applying for teacher recruiting examinations, which TAC places much emphasis upon in its teaching curriculum, is trending steadily around the 150,000 person level. (The trends of TAC's services are listed below)
Finance and Accounting
Sales on an accrual basis declined by 16.5% year-on-year to ¥1.472 billon. With regards to the Certified Public Accountant , a recovery in the number of new company listings has contributed to the adoption of an aggressive hiring strategy by Japan's Big Four audit corporations, with nearly all of the people who successfully passed the examination being hired. However, the compensation levels of the major audit corporations have declined in the aftermath of the "Lehman Shock" and the advantage of working for an audit corporation remains somewhat slim compared with compensation of other private sector companies. This in turn is leading to stagnant growth in the number of people applying to take courses for the Certified Public Accountant examination, and sales on a cash basis declined by 12.3% year-on-year. The Bookkeeping level 1 course has seen a large decline arising from weakness in the number of people applying for the highly difficult official business skill examination.
Management and Taxation
Sales on an accrual basis declined by 8.2% year-on-year to ¥2.272 billion. The decline in the number of applicants for the Licensed Tax Accountant examination declined by 9.9% year-on-year to 49,876 according to National Tax Agency preliminary data and exceeded the recent trend of declines of 5% by a large margin. The provision of night time courses, introduction of new courses that integrate entry level bookkeeping course for Certified Public Accountant and improvement in the passage rates of the official business skill test in bookkeeping could not offset the large drop in the number of examination applicants and sales on a cash basis declined by 14.3% year-on-year. The number of applications for regular students in the Small and Medium Enterprise Management Consultant courses trended at low levels.
Financial Service and Real Estate
Sales on an accrual basis increased by 5.8% year-on-year to ¥1.550 billion. On the back of the highly active real estate market and the economic recovery, the decline in the wake of the consumption tax hike remained relatively small compared with other segments and the number of people applying for Real Estate Appraiser courses remained in line with the previous year. At the same time, the number of people applying for Real Estate Transaction Manager courses actually rose by 4.1% year-on-year on a cash sales basis. The number of students applying for architect courses suddenly rose due to the increased recognition of the course since it has now been in operation for three years, and sales on a cash basis grew by 3.9 times year-on-year. Sales on a cash basis of the FP courses rose by 1.6% year-on-year on the back of the favorable demand for publications. At the same time, the decline in the extraordinary demand for Securities Analyst courses created by the NISA (Small minimum investment system) contributed to a decline in the sales on a cash basis . Sales declined on the back of deliberate reductions of unprofitable corporate training courses in the business school realm in rural area and sales on a cash basis fell by 5.4% year-on-year. Weak demand for human resources skill courses contributed to a decline in sales on a cash basis of 23.7% year-on-year.
Law
Sales on an accrual basis declined by 16.0% year-on-year to ¥961 million. The environment for courses regarding the bar examination is showing signs of improvements with the number of people taking preliminary examinations exceeding 12,600. Furthermore, the trend of taking this examination without attending graduate school for law is becoming more popular, and demand for the entry level "4A basic course" trended firmly. Consequently, the margin of decline in sales on an accrual basis contracted from the first quarter to 7.4% year-on-year. However, weak demand in the wake of the consumption tax hike contributed to severe conditions for other law related certification courses and sales on an accrual basis of Judicial Scrivener and Administrative Scrivener courses declined by 19.1% and 21.0% year-on-year respectively. The passage rates for the Patent Attorney examination has trended at high levels during the past several years due to the Government's relaxation of the passing standards, but a raising of the passing standards of the examination from the last year has contributed to a decline in the number of participants in Patent Attorney examination courses and sales on a cash basis fell by 19.7% year-on-year. In addition, The Japan Business Law Examination courses trended weakly.
Public Officer and Labor
Sales on an accrual basis declined by 5.0% year-on-year to ¥2.726 billion. Demand for certified social insurance labor consultant courses, which have been fortified in response to the increasingly difficult examination, introduced during the first quarter called "comprehensive Wide" was strong, but weakened during the second quarter. Consequently, cash based sales fell by 8.6% year-on-year. Public Officer courses recovered from the first quarter, but stagnant demand for comprehensive government worker courses for third year university students contributed to a 10.5% year-on-year decline in sales on a cash basis . Furthermore, demand for National Public Employees in the Regular Service and Senior officials of local government courses declined as the popularity of seeking employment at private sector companies increased and cash based sales declined by 10.1% year-on-year. However at the end of March, there were a large number people attending courses that contributed to a smaller margin of decline in sales on an accrual basis of 5.0% year-on-year.
Information Technology and International
Sales on an accrual basis declined by 9.4% year-on-year to ¥709 million. While demand for information processing courses and training programs consigned by local government was favorable, demand for corporate training and IT passport courses for beginners suffered from a shift to courses in telecommunications and weakness in high level examination categories caused sales on a cash basis to decline by 9.6% year-on-year. At the same time, CompTIA courses benefitted from strong demand from the main service of corporate training and sales on a cash basis rose by 7.3% year-on-year. But delays in provision of information regarding changes in the examination system contributed to weakening in demand for US Certified Public Accountant courses and sales on a cash basis fell by 20.0% year-on-year.
Others
Sales (Cash basis and accrual basis sales are the same) rose by 12.0% year-on-year to ¥668 million. Updates of the "Mahojin" tax filing software in response to the consumption tax hike contributed to a strong rise in sales of 25.4% year-on-year. Furthermore in the publishing realm, the timely launch of the TACBOOK contributed to a 2.5 time increase year-on-year. At the same time, advertising sales, including staff hiring presentations for the accounting industry during the summer in the human resources business performed by the manpower company TAC Profession Bank Co., Ltd., rose from the previous year. However, declines in the number of registered staff led to a fall in sales of dispatched workers. Moreover, ¥55 million in personnel related sales in the medical administrative work services performed by Iryojimu Staff Kansai Co., Ltd., which was acquired in June 30, 2014, was included in consolidated accounts contributing to a 12.6% year-on-year increase in sales.
 The number of students participating in Public Officer (National Public Employees in the main career track and the Specialist Personnel of the MOFA) courses declined by 17.2% year-on-year. However, the contribution from Public Officer (National Public Employees in the regular service and senior officials of local government) courses in the spring special seminar season allowed sales to rise 9.5% year-on-year. In the financial service and real estate segment, Real Estate Appraiser and Securities Analyst courses declined, but sales of Real Estate Transaction Manager and business school courses rose by 2.8% and 5.1% year-on-year respectively. Furthermore, the increased recognition of the architect courses contributed to a large rise in their sales to 86.2% year-on-year. Online training for corporate students trended favorably rising 1.7% year-on-year, while declines in training programs consigned by local governments fell by a small margin and business with affiliated schools dropped by 15.8% year-on-year.   |
| Fiscal Year March 2015 Earnings Estimates |
 No Change in Earnings Estimates Despite High Profit Attainment Rates, Slight Increase in Operating Income on Lower Sales
As shown in the table above, TAC maintained its existing earnings estimates despite the relatively high first half profit attainment rates of the full year earnings estimates. This decision to maintain a conservative stance in its earnings estimates is taken in response to the fact that the impact of the hike in the consumption tax cannot be accurately assessed and despite the fact that in a normal fiscal year 65% of profits are realized in the first half and 35% in the second half. Efforts to reduce costs will continue to be implemented during the second half. The same level of dividend payment as in the previous term of ¥1 per share is expected to be paid in the current term.
(2) Mid- to Long-Term Strategies
While large increases in the number of students attending courses in the realms of accounting and law are difficult to envision, the measures mentioned below will be implemented to expand sales and profits.
① Teacher's Certificate Exam Courses to Become Profitable
Full-scale efforts will be conducted in the current year, which is the first year since courses were established, to cultivate opportunities in this large market to total about ¥60.0 billion (Estimate by TAC). TAC will leverage its strong brand image of "TAC, The Certification School" to expand its share and maintain its competitive positioning and pricing control.
② Expand Student Numbers Through Online School
In May 2013, Online School Co., Ltd. was established and it released an online education service called "Onsuku.jp" that leverages new digital handsets including smartphones and tablets, and is based upon the concepts of "free," "simple," "easy to start" to provide opportunities to learn various curriculum to users at their convenience when and where they want.Free courses have been launched to users to spark their interest in becoming paying students of various courses. Currently, the applications "Bookkeeping Level 3," "FP Skill Level 3," "The Japan Business Law Examination Level 3," "Registered Representative Level 2," and "Real Estate Transaction Manager " have been released, and the "Seller Level 3," "Health Supervisor ," "Hazardous Materials Engineer Level 4," and others are expected to be released shortly. ③ Enter the Medical, Nursing Care Realms, Expand Human Resources Business
Leveraging the two companies that were acquired and turned into subsidiaries in June 2014 (Iryojimu Staff Kansai Co., Ltd. and Kubo Iryo Co., Ltd.), TAC is expected to enter new business realms and expand existing business realms.
◎ Medical Related Courses to Be Started
"Medical related courses" are expected to be started in the Kansai region of Japan from January 2015. Iryojimu Staff Kansai Co., Ltd. operates primarily in the Kansai region (in western Japan) and boasts of 40 years of fee claims processing tasks for both medical and dental applications, contracted work for medical applications, and worker dispatching. Training in medical related work tasks have been performed for people seeking employment in the realm of medicine, and courses that cover a wide range of medical related tasks are necessary to satisfy the growing demand for workers adept in medical related tasks. In order to enter the growing realm of medicine and nursing care in addition to its existing realms of accounting, law and civil servant related courses, the know-how of Iryojimu Staff Kansai Co., Ltd. is being leveraged in the creation of medical task related courses.
 ◎ Nursing Care Certification Acquisition Support Business to Be Started
TAC will begin offering classes in nursing care task certification that are currently being offered by Tohan Consulting Inc. at its own facilities through a collaborative arrangement with Tohan Consulting.
<Reason for Collaboration>
Tohan Consulting has established "Nursing Care Meister Kitasenju School" in the Kitsasenju region of Tokyo in October 2011 in response to its approval from the Tokyo Metropolitan Government to begin providing services to cultivate home nursing care helpers. Thereafter, classes in nursing care apprentice training (Previously home helper level 2), nursing care support specialists, nursing care worker national examination, nursing care manner seminar and other courses have been offered and large numbers of students have successfully completed Tohan's curriculum. Currently, Tohan operates two schools including its Kinshicho School opened in September 2012. Tohan Consulting is expected to begin offering nursing care certification courses called "Nursing Care Classroom Care Meister TAC Courses" at TAC school facilities nationwide. TAC will begin offering courses at its Shinjuku and Ikebukuro facilities from January 2015, and then later expand the courses to other facilities. TAC will be responsible for providing the facilities and operations for Tohan Consulting's classes. The strengths of both TAC certification acquisition school operation know-how and Tohan Consulting's nursing care courses will be integrated to cultivate an even larger number of highly skilled personnel with nursing care skills. These personnel are expected to contribute to the regional nursing care industry, to improvements in the care of the elderly, and to expand this new business realm.
<Details of the Collaboration>
With regards to the start of courses for nursing care training certification acquisition courses by Tohan Consulting, TAC will be responsible for the provision of facilities and operation of the classrooms at some of TAC's directly-managed facilities. Therefore, TAC will not be responsible for capital investments for various nursing care facilities used in the classrooms and the impact of this new business is expected to be minor during the current term.
  ④ Business structure improvement plan to be continued
While business restructuring has subsided, ongoing efforts to fortify the corporate structure are expected to be implemented. Ongoing reviews of the floor space of facilities and cost controls to achieve rational levels of operational efficiencies will be promoted in addition to the ¥3.3 billion acquisition of headquarter facilities (Including property and buildings, expected to be completed in December). Ever since it was newly built, the building has been rent on an annual rent of ¥216 million. Depreciation from the structural part of the headquarter is expected to be offset by the elimination of rent and allow operating income to improve by ¥170 million. Moreover, the assumption of debt for the purchase of the headquarter facilities will lead to additional interest payments. After taxes are considered, cash flow is expected to improve by ¥130 million. (3) Topics
A collaborative agreement entailing capital and operations was formed with Zoshinkai Publishers Co., Ltd. in December 2013 and three projects are currently being promoted.◎ Progress in Business alliance with Zoshinkai Publishers Co., Ltd. ① Public Officer , Certified Public Accountant courses being jointly developed (Expected to be launched within 2015) ② Marketing for English contents to both corporations and universities ③ Collaboration in marketing activities (Preparations for launch in Spring 2015) Leveraging the brand image of "TAC, The Certification School," TAC seeks to acquire students for its English qualification courses for TOEIC and TOEFL. With regards to English contents, the Company offers normal English conversation and has been requested to also start courses for practical English for trading business activities. While one of the issues in the creation of courses is the securing of appropriate instructors with bountiful practical experiences, the ability to do so will be an effective way of differentiating itself from other English schools. Moreover, Zoshinkai Publishers Co., Ltd. has identified the need to remind university students who have successfully passed the entrance exam after having studied as members of "Z-Kai" correspondence education courses of the importance of acquiring certifications and qualifications for their future. ◎ "ISO 29990" Global Certification Accredited
TAC has been accredited with the global certification of "ISO 29990". This is an objective and prestigious certification by the International Organization for Standardization (ISO) of its educational services, and is a reflection of the "TAC educational services quality policy."
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| Conclusions |
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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) 2015 Investment Bridge Co., Ltd. All Rights Reserved. |
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