Investment highlights have built up a strong school brand in operations. Chengshi Foreign Education is the number one private education service provider in Chengdu and southwest China, accounting for 0.43% of the extremely scattered private pre-school to twelfth grade education market. Since its establishment in 2000, the number of students enrolled has been growing steadily and is expected to reach around 52,000 by the end of 2019. A clear business model ensures profitability. Chengshi Foreign School was favored by students and parents and attracted a large number of applicants. In order to ensure the rate of high school graduates being accepted to first-class universities, we believe that beyond success, it will not expand its high school business too much. Its strategy is to expand the network of elementary and middle schools in the future. The expansion of the school network may be limited to southwest China. One way to boost future growth is to expand the school network in Chengdu, other cities in Sichuan, and other provinces in southwest China. Since its brand is strong in the southwest region, we don't think it will expand to other regions in the short term. According to the financial forecast, we expect revenue to increase by 21%/22% to $855 million/$1.04 billion in 2016/17, and net profit of net income of $256/363 million, corresponding to earnings per share of HK$0.10/0.14. Valuation and recommendations For the first time, we covered Chengshi Outer Education and gave it a neutral rating. The target price is HK$4.2, based on a price-earnings ratio of 30 times 2017. The current stock price is HK$4.06, which corresponds to an upward margin of about 3%. Risky competitive markets make penetration difficult; recruitment of high-quality teaching staff is expensive; and policy changes.