Investment highlights have built up a strong school brand in operations. Cheng Shi Wai Education is the largest K-12 (preschool to grade 12) private education service provider in southwest China. Its schools have accumulated rich teaching experience and brand awareness in long-term operation, accounting for a 0.43% share in the extremely fragmented private K-12 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. The business model outside of reality is to attract top students to their high schools and increase brand awareness, then monetize student traffic by expanding the elementary and middle school networks. 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. Achievement can also monetize its primary and middle school needs by: 1) increasing tuition fees, and/or 2) establishing more schools in the southwest region to enroll more students. Achieve growth through an asset-light model. Students from outside of the field mainly focus on domestic universities, so the student base is larger. In order to seize opportunities for the rapid development of residential education, Cheng Shi Wai will expand its school network and improve profitability by: 1) directly establishing or expanding the school network through mergers and acquisitions; 2) optimizing fees; and 3) increasing school usage. 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, with net profit of $256 million /$363 million, corresponding to earnings per share of RMB 0.08/0.12 (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 the 2017 price-earnings ratio. 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.