Matters: the company announced that in the first three quarters of 2016, operating income reached 1.422 billion yuan, an increase of 96.77% over the same period last year, and a net profit of 308 million yuan, an increase of 274.46% compared with the same period last year.

Peace viewpoint:

The performance in the first three quarters has improved by leaps and bounds, and the annual performance has grown rapidly: according to the company's three quarterly reports in 2016, the company achieved operating income of 1.422 billion yuan in the first three quarters of 2016, an increase of 96.77% over the same period last year, and a net profit of 308 million yuan, an increase of 274.46% over the same period last year. The company's performance improved by leaps and bounds in the first three quarters. We judge, mainly because of business growth, as well as subsidiary Cloud Lianxian, Jingtu Information, Jiedong Control, Chengdu Oufeiling performance and table. In terms of gross profit margin, the company's gross profit margin in the first three quarters was 43.23%, a slight increase of 1.34% over the same period last year. We judge that this is due to the increase in revenue from the company's acquired subsidiary software and high gross margin businesses such as big data. In terms of the period expense rate, the company's expense rate during the first three quarters was 19.50%, a decrease of 6.90 percentage points compared with the same period last year, indicating that the company continued to improve the integration management methods of subordinate companies in the first three quarters, and the management efficiency improved significantly.

We believe that the company's rapid growth in the first three quarters will continue into the fourth quarter, and the company's full-year performance will increase rapidly.

The intelligent conference technology continues to upgrade, and the leading position of the industry is further consolidated: during the reporting period, the company successfully completed the upgrade of the first generation digital conference system to the second generation digital conference system, and made a major breakthrough in the reliable transmission of streaming media bus. The unique phase-locked loop technology has reached the international advanced level in the aspects of clock jitter, traction range, locking time, phase margin, etc. Further consolidate the company's leading position in the field of intelligent conferencing. In terms of the construction of the five video platforms, the company's five video conferences have been put into trial operation, making technical preparations for the company to enter the middle and low-end market and achieve full coverage of the high, middle and low-end market. In the first three quarters of 2016, the company's intelligent conferencing business achieved revenue of 355 million yuan, an increase of 13.93% over the same period last year. In a single quarter, the revenue of the company's intelligent conference business reached 174 million yuan in the third quarter, an increase of 39.38% over the same period last year. The company's smart conferencing business has started in the third quarter. We believe that the company's smart conferencing business revenue will continue to grow rapidly in the fourth quarter, and the annual revenue growth rate will reach 30%.

Smart city layout is becoming more and more perfect, business coordination adds growth momentum: the company's smart city business started from the integrated application of audio-visual control, through a series of mergers and acquisitions, combined with its own customer resources and funding advantages, from Donglan Digital to top-level design, Tianwu science and technology for computer room construction and maintenance, to fine map information for underground pipelines, and Jiedong control for rail transit. To provide the city with a complete information construction plan from top-level design to long-term operation. In the process of operation, the PPP model is adopted to build a good ecology for the future development of the project. The company's smart city business revenue is growing rapidly, with revenue of 866 million yuan in the first three quarters of 2016, an increase of 124.17% over the same period last year.

We expect the company's smart city business to contribute about 250 million of its net profit in 2016.

Big data's business was implemented on the ground, and the card position advantage was gradually realized: the company acquired Ofeiling in 2015, forming big data's technical products with independent intellectual property rights, which strongly supported the operation of various sections of big data's business. At the same time, the company has formed a powerful data source of "government data + operator data + network data" through the establishment of Guoxin Lixin with China Information Center, Xinhua frequency media with Xinhua News Agency, and bidding with Guoxin. Big data has landed in the three directions of credit information system, public opinion analysis and cloud network marketing. With the company's layout and landing advantages, the company's big data business achieved explosive growth in the first three quarters. In the first three quarters of 2016, the company's big data business achieved revenue of 134 million yuan, an increase of 9512.22% over the same period last year. We expect the company's big data business to contribute about 150 million of its net profit in 2016.

There are obvious advantages in the integration of resources and technology, and there is great potential for the development of cloud-based education: in 2015, the company acquired 80% of Yunlian's shares, integrated resources and complemented each other with the existing national training network, and gradually realized the five-platform era of intelligent, personalized and adaptive learning of cloud-based education by relying on the revolutionary distance education five computing and other cutting-edge technologies. At present, the national training network continues to make profits in enrollment, on-the-job research projects, undergraduate programs, technical projects, employment bureau projects, on-the-job training projects, talent storage projects, psychological training projects, and successfully developed overseas study programs. Yunlian takes "cloud networking + intelligent manufacturing" and "intelligent education" as the two main business lines, the former based on "five mechanical schools" and the latter on "real-scene cloud teaching". "Cloud networking + intelligent manufacturing" has become a demonstration project for educational information enterprises to serve modern vocational education. At present, the market space of cloud-based education in China is broad. According to Analysys think tank, the market size of cloud-based education in China will reach 268 billion yuan in 2018. With the advantages of five technologies and channels, the cloud network education business has great potential for future development.

Profit forecast and investment advice: we maintain the profit forecast for the company from 2016 to 2018, the EPS is 0.42,0.58,0.78 yuan respectively, and the PE corresponding to the closing price on October 28 is about 34,24 and 18 times, respectively. As the leader of the domestic intelligent conference industry, with the company's technology and channel advantages, we believe that the company's intelligent conference business will be able to maintain rapid growth in the future. The smart city's perfect layout and business synergy advantages are increasingly apparent, and it will also become the backbone of business growth in the future. At the same time, the company's big data business has gradually landed, the realization path is clear, and the advantage of resource and technology integration forms a strong support for cloud-based education. Big data and cloud-based education will become the new driving force of the company's business growth in the future. We are firmly optimistic about the future development of the company and maintain the "highly recommended" rating.

Risk hint: big data's business development is not up to expectations; cloud-connected education business development is not up to expectations.