Continue to lay out the preschool education industry. The company's former main business is ultra-high resolution digital splicing wall system business. from 2015 to 2017, it successively acquired four brands of early childhood education: Hongying Education, Golden Cradle, Dingqi early Childhood Education and Childhood Education, and entered the early childhood education industry to clarify the development strategy of two-wheel drive. At present, the company's traditional VW business has entered a period of steady growth and a stable market position; the scale of preschool education business continues to expand, and the proportion of income in the main business has increased year by year, rising to 42.1% in 2017.
Policy support and market demand promote the rapid development of preschool education industry. 1) early childhood education is supported by policies. since 2010, relevant functional departments of the state have successively introduced a number of policies to develop preschool education in China; at the same time, the financial expenditure on preschool education has increased year by year, and the proportion of financial funds for preschool education has gradually increased. 2) at present, there is a large gap between supply and demand of preschool education in our country, the number of public kindergartens can not meet the needs of the public, and the proportion of private kindergartens is increasing year by year. It is expected that in the future, driven by the two factors of the two-child policy and the upgrading of consumption, there will be a broad market for preschool education.
The offline layout of the four brands of preschool education accelerates the extension and integration, and the ecology of preschool education is becoming more and more perfect. The company takes the multi-level kindergarten system as the core, takes the child growth strategy as the direction, actively seeks the horizontal expansion of the business and the vertical extension of the customer group, and constructs the ecological chain of early childhood education. In the field of kindergarten, the company now has four brands: Hongying Education, Golden Cradle, Dingqi early Childhood Education and Kerr Education, achieving differential positioning and multi-level coverage. In addition, since 2016, the company has successively invested or strategically cooperated with content or technology enterprises in the field of preschool education, such as Bei Xiao (preschool education informationization), kindergarten teacher pocket (kindergarten teacher resource sharing platform), e-reading (children's digital reading platform), Hua Mengxing sports (preschool basketball), fantasy workshop (robot education) and other preschool education fields. the sharing foundation of channels, users and technology is constantly strengthened. In 2018, the company plans to invest in Sesame Street English and acquire a 100% stake in Xiao Orange Bao, a parent-child drama performance service, to further deepen the layout of the company's offline content, and the strategy of children's growth platform continues to upgrade.
Investment suggestion: the company is located in a good preschool track, fully benefiting from policies and periodic population dividends, the company's core kindergarten system is improving day by day, has achieved differential positioning, multi-level coverage, and has brand advantages and economies of scale; through investment and cooperation in the field of preschool education, the company is expected to help the company to excavate and enhance user value in the future.
The company is expected to make a net profit of 276 million yuan, 333 million yuan and 397 million yuan from 2018 to 2020, corresponding to 0.30,0.36,0.43 yuan of EPS. It will be given a "buy-A" rating of 15 times the target PE for traditional business and 35 times the target PE for preschool education business in 2018.
Risk hint: the risk that the synergy effect is lower than expected and the extension expansion speed of each brand is lower than expected risk.