Events:

On January 20, the company signed a "Memorandum of Capital increase and acquisition" with Convex Education, which intends to hold no less than 10% of the equity of concave-convex Education by means of cash capital increase and / or acquisition of part of its original shareholders. At the same time, we have signed a "Capital increase / acquisition Memorandum" with Siqi Education, which intends to hold no less than 10% of Party B's equity by means of cash capital increase and / or acquisition of part of Siqi Education's original shareholders. The pre-investment valuation of this capital increase is 260 million yuan for concave-convex education and 600 million yuan for Siqi education.

Comments:

Deep layout K12 training, lock high-quality target layout industry prospect: the acquisition of concave and convex and Siqi Education is the company's continuous in-depth layout in the field of K12 training after the acquisition of Guangzhou Longwen transformational Education, verifying the company's unique and efficient execution. Among them, the highlight of concave-convex education lies in its personalized education, which is expanded in the second-and third-tier cities where advanced educational concepts are lacking through its rich experience and resources. Siqi education and training plate is relatively complete, with significant advantages in Hunan, will actively expand the central and southern region, excellent education and art education has obvious advantages, with independent high-quality education content and curriculum system; already has cultural excellence, personalized education, international education, music education, art education, full-time, subject English education, Chinese studies and Chinese arts and other rich and comprehensive business plate. By increasing part of the equity and locking in the priority acquisition rights, it shows that the company has a deep ploughing layout around the K12 field: aiming at the potential and high-speed growth market demand of the second and third lines in the future, while locking high-quality targets in the field of art education and excellent education, with the revision of the Civil Promotion Law and the landing of the detailed rules one after another, the obstacles to asset securitization of K12 training are gradually weakened, and the company is expected to acquire the remaining shares through stock issuance in the future.

K12 training space is broad: the second and third tier potential market is large, the art (interest) education demand will rise: K12 training market is the largest, the audience is the widest, the subdivision is numerous, at the same time, the industry is naturally scattered, the CR3 is less than 4%, national brands in third-and fourth-tier cities rarely enter, industry integration to improve concentration and scale effect is the inherent requirement of industrial development. In the future, leading enterprises are expected to make use of the advantages of funds and standardized courses and advanced educational concepts to integrate industries to improve industry concentration. Longwen Education, which the company acquired before, entered the leading series in the field of one-to-one training, while actively expanding to small class teaching. This fixed increase and lock in bump and Siqi education means that the company begins to make efforts in the second-and third-tier education and training market, relying on advanced teaching concepts to rapidly break through and expand in second-and third-tier cities to create first-mover and scale advantages. At the same time, on the basis of strengthening the advantages of the original discipline in the field of excellence, the acquisition of Siqi means that the company will settle down in the field of art education in K12. We believe that with the improvement of people's economic level, on the one hand, the training market of K12 students is growing rigidly under the pressure of enrollment. On the other hand, the demand for parents to pay attention to cultivating their children's interests and hobbies increases, and art education faces a broad market space. Its K12 training target is expected to complement each other in the source of students, teachers, content, region and other aspects to achieve coordination.

"horse racing enclosure" establishes first-mover advantages, integration and management coordinated promotion: within a short period of one year, the company's management has achieved "horse racing enclosure" in the fields of preschool education, K12 training and international schools by virtue of firm transformational courage and financial advantages. at present, the scale of its educational assets has become the leader of education. At the same time, around the collaborative and integrated management of its many educational assets, the company is also actively promoting, committed to building a high-quality education management team to build a leading education group. It is expected to actively cooperate with the two shareholders, Huaxia Life Insurance, integrate many of its educational assets in teachers, ideas, content, geographical and other high-quality resources, "horse enclosure" efforts will not be reduced, coordination and management will also continue to promote.

Profit forecast and valuation: do not consider the preparation for the performance of the increased assets for the time being, assuming that the LED sector is spun off in 2017, and assuming that the performance of the existing educational assets of the company is taken into account, we expect the performance of the company's assets to be 410 million yuan, 447 million yuan and 544 million yuan from 2016 to 2018, and the corresponding pre-valuations are 37 ×, 34 × and 28 × PE, respectively. We believe that the leading position of the company's education is prominent, integration and coordination will be actively carried out after the horse race enclosure, and the scale effect and first-mover advantages will be highlighted. Maintain a highly recommended rating.

Risk tips: the LED industry recovers slowly, the project does not meet expectations, and it is difficult to integrate.