Incident: Nantian Information issued the “Notice Concerning Withdrawal of Application Documents for the Company's Non-public Offering of Shares”.

The uncertainty concerns that have plagued the market have finally come to an end. Our previous Nantian Information Report, “We need to wait for a definitive signal in the short term; the reversal of medium- to long-term incentives is clear” directly stated that “... and the company's increase plan needs to be clarified. It is recommended that investors wait for definitive signals in the short term and continue to be optimistic about improved company incentives and frequent industry benefits in the medium to long term”, and directly stated in the risk warning that “risk warning: the uncertainty of the increase in issuance and the uncertainty of the plan needs further clarification.” Other than this report, the other two latest industry reports have not recommended this target yet. The basis for our recommendation to wait for confirmation signals is that “since 2016, supervisory authorities have tightened their refinancing reviews of listed companies”, as evidenced by the publication “Supervisory Authority Audits Tightened, 41 Listed Companies Suspend Important Matters” published by Panorama on July 27.

Improved incentives and increased profits have not changed at all. The announcement stated, “The company needs to further improve the capital investment project for the non-public offering of shares, since related work requires a certain period of time...” It also stated that “follow-up matters will not be arranged until the improvement work of this non-public fund-raising investment project has been completed.” The announcement suggests that additional reports will continue to be issued after the revised fund-raising investment is made. It is speculated that after this application is withdrawn, the probability of subsequent refinancing being approved will be increased through revisions and a second declaration, which reflects the company's determination to improve governance. As a result, the fundamentals have not changed.

If the withdrawal is not successful, the fundamentals and additional issuance progress will continue. If the withdrawal is successful, the company's incentive costs will be higher, implying investment opportunities! The withdrawal of the application is still subject to approval. 1) If the supervisory authority does not agree to withdraw, the fundamentals will continue. 2) If the withdrawal is successful, it is speculated that the additional price may be re-locked, and the management's shareholding price is consistent with this. According to the March 15 announcement, the issue price will be determined by the subsequent market price (90% of the average trading price of the company's stock for the 20 trading days before the pricing benchmark date). The current price of 20.83 yuan is higher than the reserve price of 16.30 yuan in the previous additional issue. Rational investors have investment opportunities to share dividends close to the cost of increasing management holdings.

Many optimistic signs of growth suggest a reversal in profits. 1) Impairment losses in 2015 were RMB 43.69 million, including losses from bad debts amounting to RMB 23 million and impairment losses of intangible assets amounting to RMB 16.57 million. 2) Gross margin has been rising for two consecutive years. It can be seen that the share of the software business has increased. 3) Caracal hinted at the beginning of continuing acquisitions.

Maintain the “increase in holdings” rating and maintain profit forecasts. Considering the expected increase in issuance and continuation of incentives, outreach has become a continuous strategy. Buying Nantian Information is tantamount to buying a target for a profit reversal (historical bad debt depreciation is an accident, gross margin rises), and it is possible that the purchase cost is lower than the incentive cost for executives! The company's revenue in 2016-2018 is estimated to be 2,260 million, 2,539 and 2,731 billion yuan respectively. Net profit in 2016-2018 was $21 million, $52 million, and $57 million, respectively, and exam preparation profits were $0.72, 120, and 132 million yuan.