TAL Education: A Real Business With Fake Financials Part III – Muddy Waters


Muddy Waters remain short on TAL Education, below are the slides on Peiyou offline enrollments which appear to be declining.

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Q2 hedge fund letters, conference, scoops etc

Peiyou offline enrollments appear to be declining YoY

Peiyou Q3 2018 Disclosures

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  • Total enrollment YoY +91.7%
  • Total revenue YoY +62.4%
  • Online ASPs ~40% lower than offline in quarter
  • Offline ASPs experienced YoY “high single digit” growth

We use a common-size model to show how this data implies YoY offline enrollment decreases

1. Common Size the Data

TAL Education Peiyou

2. This Gives Us Two Equations

TAL Education Peiyou

3. Insert a “High Single Digit” Offline ASP Growth Rate and Solve for e_off

  • If g_offASP = 6.0%, then offline enrollment declined 4.5%
  • If g_offASP = 7.5%, then offline enrollment declined 9.9%
  • If g_offASP = 9.0%, then offline enrollment declined 15.1%

Why Didn’t TAL Disclose Online / Offline ASP Ratio on the Q4 Call?

  • We think it’s because our analyst sent a similar version of this model to TAL IR for comment prior to the Q4 call
  • We never received a response
  • Until that time, our and analyst and IR had been actively dialoguing

Our next report will detail why we believe TAL has fabricated Peiyou results

Article by Muddy Waters