BRIDGE REPORT
(4319)

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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
Year-end
March
Homepage
Stock Information
Share Price Shares Outstanding Market Cap. ROE (Act.) Trading Unit
¥256 18,503,932 shares ¥4.737 billion 10.3% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Act.) PBR (Act.)
¥5.00 1.9% ¥23.78 10.8x ¥267.76 1.0x
* Stock price as of close on November 15, 2017. Number of shares outstanding as of most recent quarter end do not include treasury shares.
 
Consolidated Earnings Trends
Fiscal Year 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 20,440 713 692 490 26.49 4.00
March 2018 Est. 20,900 810 780 440 23.78 5.00
* 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 2018 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 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 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 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 the 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 office 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 the students of its courses.
 
(2) Full-Scale Lineup and Active Course Development
TAC has risen to become the top player in the industry through its active 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 Accountant, 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."
 
Return on equity rose by a large margin from the previous term due in part to the decline in extraordinary loss. However, improvement in net income to sales ratio remains to be a crucial issue for TAC.
 
 
First Half of Fiscal Year March 2018 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 to 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 the booking of a fixed level of expenses every month. In the fourth and first quarters, these tuition advances are then written down and booked as sales in each month, causing gross margin to increase.
 
 
Higher Sales, Profits
Sales on a cash basis and sales on an accrual basis rose by 3.3% and 2.7% year-on-year to ¥11.144 and ¥11.115 billion respectively on the back of increases in sales of all business segments. Finance and accounting, and finance and real estate courses trended favorably.
Operating income rose by 6.2% year-on-year to ¥1.039 billion on the back of increases in profits of the Personal Education segment. Cost of sales rose along with the rise in sales, but declines in reserves for inventory asset disposals allowed gross income to rise. Higher labor and advertising expenses arising from increases in marketing, sales promotion fortification efforts were absorbed.
Also, the disappearance of settlement fees recorded during the previous term caused net income to decline by 4.2% year-on-year to ¥662 million.
 
 
 
Instruction fees, outsourcing fees for course material creation, rent and other operating expenses rose by 1.1% year-on-year to ¥6.295 billion. However the higher sales offset these higher expenses and allowed profits to rise.
 
 
Costs, primarily labor, rose by 5.8% year-on-year.
 
<Publishing Business>
Higher Sales, Lower Profits
(TAC Publishing)
Real Estate Transaction Manager, Certified Social Insurance and Labor Consultant, Small and Medium Enterprise Management Consultant, financial planner, Administrative Scrivener, and bookkeeping curricula saw higher sales
Public Officer curriculum saw lower sales
Baseline sales had risen in the same period of the previous year on the back of the publication of "Otona Tabi Premium" (Adult Travel Premium)" travel books
 
(W Publishing)
Judicial Scrivener related texts trended favorably and rose slightly from the previous year.
 
While production costs of travel books fell, higher costs of copyright purchases and translation caused profits to fall.
 
<Manpower Business>
Higher Sales, Lower Profits
Strong demand for Manpower Business from auditing and tax accounting firms allowed head hunting and personnel dispatching services to trend favorably.
With regards to medical related human resources, the number of job openings rose from the previous year, but the number of job seeking registered applicants remained in the line with the previous year. Consequently, a greater number of job seeking registered applicants will have to be secured.
 
 
 
<Market Overview>
The number of official test applicants of the various curricula taught by TAC rose by about 96,000 from the previous year to 2.609 million during 2016 for the second consecutive year of increases.
 
(Finance, Accounting Area)
The number of applicants taking the 2017 Certified Public Accountant Examination rose by 776 from the previous year to 11,032 for the second consecutive year of increases. Also, the number of examination applicants, particularly beginners, applying for Certified Public Accounting curriculum trended favorably. However, the favorable job market led to weak demand for courses targeting participants with examination experience as potential examination participants took on jobs instead of pursuing certification.
The number of examination participants taking the grade 3 Bookkeeper certification examination remained in line with the previous year's level, but the number taking the grade 2 examination fell by 4% year-on-year, causing the number of curriculum attendants to fall from the previous year. "Easy to Understand Bookkeeper", "The Bookkeeping Textbook that Everyone Wanted" and other certification examination text materials published by TAC Publishing saw year-on-year increases in sales.
 
(Taxation, Management Area)
The number of tax accounting certification examination participants continued to fall and declined by 6.4% year-on-year to 41,242 in 2017. Consequently, the number of related curriculum applicants also trended weakly after the examination held during the summer.
 
(Financial Service, Real Estate Area)
Curricula for Real Estate Appraisers, Real Estate Real Estate Transaction Managers, Architects, and Securities Analysts continued to trend favorably.
 
(Law Area)
Bar Examination curriculum trended weakly and caused sales to fall.
 
(Public Officer, Labor Area)
Sales of Public Officer curriculum rose year-on-year due to further improvement of services and promotional efforts and despite declines in the number of applicants for the Public Officer examination due to employment opportunities created by strong demand for workers in the private sector.
Increased interest in labor related issues allowed the number of applicants of Certified Social Insurance and Labor Consultant related curricula to rise, mainly with working people.
 
(Other Areas)
The subsidiary TAC Professional Bank Co., Ltd., which provides human resources specializing in the area of accounting, saw favorable business trends due to the overall shortage of human resources in the accounting industry. At the same time however, lower sales of travel books could not be offset and total sales of this segment declined.
 
 
Business Trends by Curriculum Category (Combined Total for both Personal and Corporate Instruction)
<Increases>
The Certified Public Accountant, Real Estate Transaction Manager, Architect, and Financial Planning curricula saw increases of 6.8%, 10.4%, 50.1% and 11.2% year-on-year respectively.
 
<Declines>
The Licensed Tax Accountant, Judicial Scrivener and US Certified Public Accountant curriculum recorded declines of 3.7%, 3.0% and 11.2% year-on-year respectively.
In the corporate client curriculum area, sales of correspondence courses for training, for which large orders were received, and in-university seminars rose 37.0% and 9.0% year-on-year respectively, while curriculum taught at affiliated schools and consigned training fell by 11.5% and 13.0% year-on-year respectively.
 
 
Current assets rose by ¥931 million from the end of the previous fiscal year on the back of increases in accounts receivables. At the same time, a rise in investment securities and other accounts contributed to a ¥238 million increase in Fixed Assets and a ¥1.170 billion rise in total assets to ¥23.239 billion.
Total liabilities rose by ¥558 million to ¥17.668 billion on the back of increases in long term debt and other accounts. At the same time, a rise in retained earnings allowed net assets to rise by ¥611 million to ¥5.570 billion.
Consequently, capital adequacy ratio rose by 1.5% points from the end of the previous term to 24.0%.
 
 
Increases in bonus reserves allowed operating cash flow to turn from a net outflow in the previous first half to a large net inflow in the current first half. Higher payments for acquisition of investment securities caused a net outflow to be recorded in investing cash flow compared with the net inflow seen during the previous first half.
Free cash flow remained basically unchanged.
A decline in cash from long term debt caused the margin of net inflow of financing cash flow to be reduced.
Consequent to these changes, cash position fell.
 
(6) Topics
◎ Establishment of "Japan Financial Specialist Development Association"
The Japan Financial Specialist Development Association was established on September 1, 2017.
 
(Reason for Establishment of this Institution)
In order for Japan to revitalize regional economies, TAC believes that there is a need to develop human resources with the ability to appropriately evaluate businesses in need of financing. Consequently, the Company launched in May new curriculum addressing this issue including classes for new certification examinations.
Thereafter, preparations to establish the Japan Financial Specialist Development Association as an institution for the implementation of certification examinations were completed.
 
(Overview of the Japan Financial Specialist Development Association)
The President of the Japan Financial Specialist Development Association is Toshio Tada, executive vice president of TAC.
This Association has been established with the goal of communicating and diffusing information, awareness-raising activities, and promoting research and analysis based upon broad-based expert knowledge regarding financial service and corporate management to people with an interest in financial service and corporate management within Japan.

The specific services to be conducted are as follows:
Diffusion and promotion of knowledge regarding financial service and corporate management
Academic research and analysis of, and training in, financial service and corporate management
Various events regarding financial service and corporate management including lectures, academic conventions and research presentations, and exchange parties
Curriculum to be taught, certification examinations to be implemented, and assessment of capabilities conducted in financial service and corporate management, as well as development of financial specialists
 
The fund of ¥20 million has been provided in full by TAC.
 
(Overview of Certification Examinations)
The name of the new examination is "Financial Specialist and Corporate Management Advisor (tentative name)" and it will be conducted in Tokyo, Nagoya and Osaka. This examination will test the knowledge and actual skill levels of examination applicants.
 
 
In order to be certified as a "Financial Specialist and Corporate Management Advisor (tentative name)", an applicant needs to pass both the knowledge and skill portions of the examinations, and complete courses in communication skill improvement curriculum.
The communication skill improvement curriculum includes role playing activities and training designed to improve the applicant's ability to come up with questions and proposals.
 
◎"CompTIA Outstanding Leader Award" Received
CompTIA certification examination is a highly credible global qualification that is deemed essential for human resources dealing with information security at the United States Department of Defense, and has come to be adopted by major Japanese corporations in recent years for use in development and hiring of related human resources.
TAC maintains a goal as part of its fundamental policy of "eliminating the disparity between Japan and the West with regards to information expertise in the IT education area" and implemented the CompTIA certification as a global standard IT qualification from 2001. It has since aggressively promoted its diffusion.
The CompTIA organization chose to award TAC with the "CompTIA Outstanding Leader Award" for its aggressive activities to promote this certification as the first training partner within Japan.
 
◎"The Textbook That Everyone Wanted, The First Step!" Published
TAC text materials for certification examinations are focused largely on those who have already identified their targeted certifications and are designed to effectively teach curriculum participants how to ultimately pass certification examinations.

TAC's "The Textbook That Everyone Wanted, The First Step!" materials, on the other hand, aim to cultivate new curriculum participants who do not know exactly which certification they want to study for and who want to acquire knowledge for other new areas.

TAC expects to publish a total of about 20 new "The Textbook That Everyone Wanted, The First Step!" titles every year and to eventually accumulate a text library of 300 titles covering a wide range of valuable curricula.
By covering new certification examination categories TAC seeks to cultivate new categories of clients.
 
 
Fiscal Year March 2018 Earnings Estimates
 
 
Earnings Estimates Remain Unchanged, Call for Higher Sales, Profits
TAC maintained its outstanding earnings estimates, which call for sales on a cash basis to rise by 1.8% or ¥362 million year-on-year to ¥20.990 billion.
Gross income margin is expected to rise by 0.2% points, and sales, general and administrative expense margin is expected to decline by 0.2% points, allowing operating income to rise by 13.6% year-on-year to ¥810 million.
Dividends are expected to be raised by ¥1 to ¥5.00 per share, for an anticipated dividend payout ratio of 21.0%.

TAC has identified four themes within its medium to long term business strategy including "new business development and cost control", "profitability of new courses", "promotion of M&A and cooperative partnerships", and "increasing corporate brand value".

The Architect curriculum, which was established in 2012, is an example of TAC's efforts to realize profitability of new courses.
This curriculum has become popular for its high quality education at low cost, and participants have achieved favorable examination results, which in turn increased the number of new participants.

Following this curriculum, "Teacher's Certificate Exam Courses" by regional governments have steadily expanded since their establishment in fall 2013.

Various learning media, fortified follow-up structure, differentiated curriculum catering to specific prefectures, and on-campus lectures leveraging the university network have allowed sales of various curricula to expand by about five-fold from the first year that they were started.
 
 
Conclusions
 
Sales on a cash basis during the first half of the current fiscal year trended favorably and achieved a relatively high attainment rate (compared with the previous few years) of full year estimates of 53.1%. On a full year basis however, sales on a cash basis and operating income only exceeded full year estimates twice each, namely in fiscal year March 2014 and 2017, and 2013 and 2014 respectively.
Consequently, TAC's medium term efforts including "new business development", "securing of profitability of new courses" and "M&A and collaboration promotion" should be watched closely along with its near term earnings.
 
 
 
<Reference: Corporate Governance>
 
◎Corporate Governance Report
Last Update: Jun. 28, 2017.
 
 
 
 
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) 2018 Investment Bridge Co., Ltd. All Rights Reserved.
 
 
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