Event: the company issued an annual report: ① achieved revenue of 3.33 billion yuan in 2017, an increase of 15.77% over the same period last year, and a net profit of 137 million yuan, an increase of 4.88% over the same period last year. Basic earnings per share was 0.11 yuan, with a cash dividend of 0.20 yuan per 10 shares; ② Q1 realized revenue of 861 million yuan in 2018, an increase of 18.03% over the same period last year, and net profit of 56.39 million yuan, an increase of 15.99%.

Core ideas:

The growth of the main decoration industry is stable, and the education and training operations department suppresses the performance during the adjustment period. In 2017, the revenue of the company's main decoration business was 3.07 billion yuan, an increase of 20.8% over the same period last year, and the growth of the main business remained stable; the revenue from education and training was 260 million yuan, a decrease of 6% over the same period last year. Due to business adjustment, the net profit of Xuelsen and cross-examination was-35.85 million yuan and 46.89 million yuan respectively, failing to fulfill the performance promise. Affected by the performance of Xuelsen, the company set aside 41.31 million yuan of goodwill. In addition, the company has achieved initial results in strengthening the control of accounts receivable. During the reporting period, the confirmed loss of bad debts was 23.49 million yuan, a decrease of 37.29 million yuan compared with the same period last year. The company achieved a comprehensive gross profit margin of 22.88%, a decrease of 1.92pct compared with the same period last year. The gross profit margin of education business maintained stability, and the gross profit margin of decoration decreased by 1.11pct to 18.85% compared with the same period last year. Due to equity incentives and the increase in interest-bearing bonds, management fees and financial rates increased year-on-year 1.12pct and 2.78pct. Considering the stable growth of the company's main business, vocational education training is expected to usher in marginal improvement, and the company's performance is expected to hit bottom and pick up.

Enter the assets of private schools and open up a new round of growth space. The company intends to acquire 51% and 55% of the parent company of Sichuan City Vocational College and Guangzhou Foreign-related Economic Vocational and Technical College at a price of 510 million yuan and 340 million yuan respectively. Among them, Sichuan New concept Company, a shareholder of Sichuan City Vocational College, has committed a performance commitment of 6500, 7500 and 85 million yuan for 2018-2020. Sichuan City Vocational College currently has 14000 students. Considering the dual drive of the recent promotion qualification of the school and the expansion of nearly 10,000 degrees in the new campus, the number of students is expected to achieve positive growth in the future; Guangzhou Foreign-related Vocational and Technical College currently has 13000 students, considering the ceiling of the main building of the new campus in 2017, it is expected to bring performance growth in the near future.

5.3 billion order reserves, the main business growth has a high degree of certainty. The company's newly signed orders in 2017 exceeded 5.8 billion yuan, an increase of 26.52% over the same period last year. At present, the company has a reserve of 5.3 billion orders. We are optimistic that the company will maintain steady growth and contribute to its performance with its rich order reserves.

Profit forecast and valuation: we expect the company's return net profit from 2018 to 2020 to be 2.67 EPS 3.02 / 342 million yuan, corresponding to PE 0.21pm 0.24pm 0.27 yuan / share, corresponding PE is 20-18-16 times. Combined with the industry comparable company valuation, we give the company 30 times PE for 18 years, maintain the target price of 6.66 yuan per share, and maintain a highly recommended rating.

Risk hint: the merger and acquisition of educational integration falls short of expectations, and the traditional main business declines sharply.