Event: Tuowei Information released its 2017 mid-year report. 17H1 achieved operating income of 551 million yuan, an increase of 12.31% over the previous year; realized net profit of 130 million yuan, an increase of 0.52% over the previous year; and realized net profit of 116 million yuan, an increase of 19.99% over the previous year. Comment: The education business is growing steadily. Revenue side: 17H1's education business achieved revenue of 370 million yuan (yoy 10.45%, 67.12%), of which education informatization achieved revenue of 103 million yuan (yoy 12.39%), K12 smart education achieved revenue of 154 million yuan (yoy 9.79%), and Yunbao in the preschool education sector achieved revenue of 858.369 million yuan (yoy 9.46%); the company's mobile game business achieved revenue of 91.974 million yuan (yoy 15.2%). Expense side: The sales expense ratio is 14.38% (+3.88 pct), mainly due to the increase in education marketing team personnel in this period, the management fee rate is 25.79% (-2.37 pct), and the financial expenses rate is -0.62% (-0.42pct), due to the increase in revenue brought about by strengthened corporate fund management in the current period. 171H has a comprehensive gross profit margin of 63.92% (-1.23 pct) and a net profit margin of 23.34% (-2.79 pct). The strategy focuses on the education industry, and ecosystem construction has achieved remarkable results. The company takes content+service as the core, builds C-side links, and makes every effort to develop the two core businesses of “Tuowei Academy” (K12) and “Cloud Baby” (preschool education) to create an engine for future growth. (1) In the K12 field, “Tuowei Academy” opens up internal and external schools, online and offline, and provides high-quality regional content and localized caring services; its core content brand Lushan Myobi Essay reached a total of 1,682 million registered users in January-June, 128,000 fans on the national public account, and 333,600 total paid users. (2) In the field of preschool education, the company is the number one kindergarten multimedia interactive classroom provider in China, serving nearly 20,000 kindergartens. “Cloud Baby” achieved a total revenue of 86 million yuan in the first half of the year, an increase of 9.46% over the previous year. (3) In the field of education informatization, Yuntian Technology is the number one examination service and education evaluation provider in China. It serves more than 140 local and municipal education bureaus, has a market share of over 58% for college entrance examinations, a market share of more than 40% for secondary school entrance examinations, and more than 200 million examination and evaluation data processing. Investment suggestions: The company's 2017-2019 operating income is expected to be 1,237 million yuan, 1,459 million yuan and 1,712 billion yuan, respectively, up 20.27%, 17.96% and 17.33% year on year; net profit of 290 million, 343 million and 406 million yuan, up 37.31%, 18.13% and 18.47% year on year; estimated earnings per share for 2017-2019 are 0.26 yuan, 0.31 yuan and 0.37 yuan, respectively, according to the current stock price of 9.63 yuan corresponding to PE 37x, 31x, and 26x. Maintain the “Overweight” rating. Risk warning: Increased competition in the education industry and the risk of mergers and acquisitions integration.