Incident: The company announced on May 15, 2018, that it plans to acquire 35% of the shares of Beijing Kerry Alliance Education Technology Co., Ltd. with 262.5 million yuan. The funding source is part of the capital raised or self-funded for the change of use. The performance promise for this transaction is that the 2018-2020 net profit will not be less than 50 million yuan, 61 million yuan, and 74 million yuan, respectively. Comment: Participated in high-end children's English brands and successfully entered the children's language training circuit. “Sesame Street English” is an EFL (English as a Foreign Language) comprehensive multimedia education course developed by Sesame Street Studios in the US (the producer of the animated program “Sesame Street”) for children aged 3-12. Kerry Alliance is the domestic operator of Sesame Street English and the exclusive licensee of the brand in mainland China (excluding Taiwan and Fujian) and Hong Kong and Macau. Since its establishment in 2013, Kerry Alliance has achieved the nationwide expansion of Sesame Street English through a direct management+franchise model, successfully building it into a high-end children's English training brand with brand influence in China. According to the acquisition announcement, as of the end of 2017, 6 directly-managed stores had been opened and 348 franchised stores had been signed (of which 197 were already in operation), covering 150 regions across the country, with a total of more than 50,000 trainees. Advanced education concepts guide content development, and decades of IP accumulation have established brand reputation. (1) “Sesame Street” is a children's education series produced by Sesame Street Studio. It premiered in 1969. Over the past 50 years of accumulation, it has become a world-renowned early education IP. The studio has always adopted universal and effective early childhood education as the purpose of the program. In addition to being interesting, special emphasis is placed on imparting practical knowledge, skills, and correct values; at the same time, rigorous early education research results are introduced into program production, and early childhood education experts and educators are invited to participate in the entire program process. Its effectiveness in improving children's cognition and behavior is also supported by academic research results. (2) Sesame Street English adheres to the concept and characteristics of “Sesame Street” early childhood education, and emphasizes the simultaneous improvement of knowledge and cognition. That is, in addition to training children in spoken English, reading, writing, and computation, it also simultaneously combines cognitive aspects such as social ability and emotional health. The combination of international high-quality IP and content enables Sesame Street English to gain customer recognition more quickly in the domestic market and attract allied partners to join. High-quality content helps improve the company's preschool education ecosystem, and is expected to share channels, users, partners, and technical resources. The company takes a multi-level kindergarten system as the core and child development strategy as the direction, actively seeks horizontal business expansion and vertical expansion of customer base, and builds an ecological chain for preschool education. In the kindergarten sector, according to the 2017 annual report, the company now has four major brands: Hongying, Golden Cradle, Kerr, and Dingqi. By the end of 2017, it had 6 kindergartens in chain, 50 managed kindergartens, 4 cooperative kindergartens, and 4922 affiliated kindergartens. The huge offline kindergarten system lays the company's channels and user base. Furthermore, since 2016, the company has successively invested or strategically cooperated to provide content or technology in preschool education fields such as Bei Chat (preschool education informatization), Preschool Teacher Pocket (preschool teacher resource sharing platform), Chura Reading (children's digital reading platform), Huameng Star Sports (toddler basketball), and fantasy workshops (robot education), etc., and the sharing base of channels, users, and technology has been continuously strengthened. The current investment in the Kerry Alliance will further deepen the company's offline content side layout, and both sides have more room to share resources such as customer groups and alliances, which is expected to help each other and amplify their advantages. Investment suggestions: After an extended layout since 2015, the company's core kindergarten system has been improved day by day, achieving differentiated positioning and multi-level coverage, and forming brand advantages and scale effects. Meanwhile, the investment and cooperation layout in the field of preschool education enabled the company to deepen its understanding of the industry while also enriching the accumulation of resources, and the industrial ecology is beginning to take shape. In the future, on the basis of continuing the expansion and integration of the park, the company is expected to use the industrial resources within the ecosystem to seek deep monetization of users. Considering the investment income brought about by this acquisition, the company's net profit in 2018 is estimated at 276 million yuan, which is 35 times the target PE, the target price is 10.58 yuan, and the “buy-A” rating. Risk warning: The risk of extended integration, and the risk of poor expansion of various brands.