Main points of investment:

The company's net profit in 2017 increased by 4.88% compared with the same period last year, which is basically in line with our expectations. 18Q1 net profit increased by 12.06% compared with the same period last year, which is lower than our forecast (20%). The company expects net profit growth range from January to June 2017 [0% 30%]. In 2017, the company realized operating income of 3.331 billion yuan, an increase of 15.77% over the same period last year. The net profit attributed to shareholders of listed companies was 137 million yuan, an increase of 4.88% over the same period last year. Quarterly 2017Q1/Q2/Q3/Q4 realized income of 730 million / 1.221 billion / 593 million / 787 million, year-on-year growth of-23.95% / 1.221 billion / 593 million / 787 million, year-on-year growth of 66.87% / 39.56% / 283.65%, and contributed profit of 50 million / 53 million / 32 / 02 million per quarter respectively. Year-on-year growth-38.65%, 23.54%, 62.32%, 102.03%. 2018Q1 realized operating income of 861 million yuan, an increase of 18.03% over the same period last year, and a net profit of 56 million yuan, an increase of 12.06% over the same period last year, mainly due to the reduction of 18Q1 government subsidies over the same period last year, resulting in 18Q1 performance growth lower than we expected.

In 17 years, the revenue of the decoration business increased by 20.8% compared with the same period last year, while the income from vocational education fell by 6.06% compared with the same period last year. According to the business segment, the revenue contributed by the decoration business was 3.07 billion, up 20.8% from the same period last year, and the income contributed by vocational education was 261 million, down 6.06% from the same period last year. Among the subsidiary companies, the net profit of cross-examination education was 46.9 million yuan (the promised net profit was 60 million yuan), an increase of 1.34% over the same period of last year. Cross-examination education took the initiative to adjust its strategy in 2017, and it took a certain time to release benefits. At the same time, it increased the investment in IT research and development, so it had a greater impact on short-term profits. Xuelsen realized net profit of-35.85 million yuan (promised net profit of 60 million yuan), reducing losses by 9.74 million yuan compared with the same period last year. On the one hand, some qualification examination policies are not yet fully clear, which has an impact on the company's revenue. On the other hand, the company increases learning platform development, curriculum development and offline optimization and upgrading. Short-term cost increases lead to performance losses. At present, the company's vocational education business is still in the integrated training period. Performance repair can be achieved in the future with the completion of effective integration.

Affected by the increase in revenue reform and increased competition in the industry, the company's 2017 / 2018Q1 gross profit margin fell 1.92% to 2.80% respectively compared with the same period last year, but the company strengthened the recovery of accounts receivable and its net profit rate declined slightly. The company's comprehensive gross profit margin in 2017 was 22.88%, down 1.92% from the same period last year, and the expense rate during the period was 2.98% higher than the same period last year. Among them, the sales expense rate decreased by 0.91% year on year to 6.81%, 17 years equity incentive amortization expense increased by 33 million yuan compared with the same period last year, and the management expense rate increased by 1.11% to 6.66%. The financial expense rate increased by 2.78 percentage points to 4.66% compared with the same period last year, mainly due to the increase in interest liabilities and the inclusion of interest income from financial products in investment income. The company strengthened the recovery of accounts receivable, reducing the proportion of asset impairment loss / operating income by 1.53 percentage points to 1.95%. Under the combined impact, the company's net interest rate fell 0.28 percentage points in 2017 compared with the same period last year. The company's 2018Q1 comprehensive gross profit margin was 20.21%, down 2.80% from the same period last year, the sales expense rate decreased sharply by 2.16% to 4.80%, 18Q1 equity incentive amortization fee increased year on year, and the management expense rate increased by 0.86% to 6.20%. In the first quarter, the company stepped up the recovery of accounts receivable, which decreased by 115 million yuan compared with the same period last year and 785 million yuan compared with the same period last year, resulting in a 3.03% decrease in asset impairment / operating income compared with the same period last year. In addition, due to more government subsidies in the same period last year, non-operating income / operating income decreased by 0.32% year-on-year to 0.01%. Under the combined impact, the net interest rate of 2018Q1 fell 0.49%.

The income-to-cash ratio has increased, the payment-to-cash ratio has decreased, and the strengthening of repayment has greatly improved the operating cash flow of 18Q1 for the whole year of 17 years. The net operating cash flow of the company in 2017-139 million yuan, 414 million yuan less than the same period last year, 88.2% in cash, 14.2% higher than the same period last year, 19 million yuan in advance, 100.9% in cash, 3.54% higher than the same period last year. The net cash flow of 2018Q1's operating activities was 283 million yuan, an increase of 579 million yuan over the same period last year, with a cash-to-cash ratio of 144.0%, an increase of 36.3% over the same period last year, and a cash-to-cash ratio of 81.7%, a decrease of 41.5% over the same period last year.

New residential orders continue to grow rapidly, with reserves on hand to support future performance. The company's 2017Q1/Q2/Q3/Q4/2018Q1 newly signed 1.1 billion / 932 million / 1.43 billion / 2.23 billion / 750 million in a single quarter, corresponding to 42.7% 2017Q4/2018Q1 growth rate of 31.9%. In terms of business type, 18Q1 newly signed public / residential / design orders were 586 million / 148 million / 0.15 million, corresponding to a growth rate of-43.6%, 217.1% and 2.04%. The year-on-year growth rate of residential orders continued to increase by 81.5% compared with 17Q4, and continued to maintain rapid growth. As of 2018Q1, the accumulated unfinished orders totaled 5.37 billion yuan, an increase of 62.7% over the same period last year, and the order revenue guarantee coefficient was 1.6, forming a good support for the future decoration industry.

The continuous layout of the vocational education industry has entered the field of front-end diploma vocational education. The company clearly defines the strategic goal of "making vocational education as the second main business of the company". In recent years, it has been acquired through mergers and acquisitions: 1) China Architectural Decoration Industry Vocational Education platform: Zhongxin.com and Xuelsen; 2) academic qualifications promotion vocational education platform: cross-examination education; 3) participate in Jin Yingjie, make strategic preparations for the establishment of a vocational education platform for the medical industry. Over the past 17 years, the company has continued to expand the layout of the education industry, improved the territory of vocational education, successfully acquired Sichuan Urban Vocational College, and signed a framework agreement with Guangzhou Institute of Foreign Economics and Technology to acquire 55% of the equity. Formally enter the front-end field of vocational education, with the front-end academic education through the back-end non-academic vocational education and training of the "vertical link" strategic thinking Comprehensively upgrade the industrial layout of the company in the field of vocational education.

Downgrade the 18-19 profit forecast, add the 2020 profit forecast, maintain the "overweight" rating: considering that the company's education business is still in the period of integrated cultivation, the cost investment is high, and it takes some time to release the performance, downgrade the 18-19 profit forecast, add the 2020 profit forecast, and estimate the company's 18-20-year net profit of 233 million / 291 million / 364 million (the original value of 18-19 is 323 million / 433 million). The growth rate is 70%, 25%, 25%, respectively. The corresponding PE is 23X/19X/15X, respectively, maintaining the overweight rating.