Company News The company released its 2018 three-quarter report. Q3 achieved revenue of 616 million yuan, an increase of 20.70% over the previous year; imputed net profit was 49.03 million yuan, a year-on-year decrease of 37.16%. The first three quarters of the event review: Revenue increased by 21% and non-attributable net profit increased by 20%. In the first three quarters, the company achieved a total revenue of 1,578 billion yuan, an increase of 21.13% over the previous year, maintaining a steady growth rate. On a quarterly basis, the revenue growth rates of 2018Q1, Q2, and Q3 were 28.00%, 16.23%, and 20.70%, respectively. The total gross margin of the company in January-September was about 45.32%, an increase of 1.11pct over the previous year. Among them, Q1, Q2, and Q3 gross margins were 43.36%, 45.47%, and 46.61%, respectively, increasing quarterly. In the first three quarters, the company's sales expense ratio increased 2.59pct to 25.11% year on year, mainly due to the increase in marketing expenses due to the expansion of education and training; management expenses decreased 4.28% year over year, resulting in a management fee rate of 3.64 pct to 13.69% year on year; R&D expenditure was 11.14 million yuan, and the R&D expenses rate was 0.71%; affected by the increase in bank deposit interest income, the financial expenses rate fell 0.23pct year on year. In January-September, the company achieved imputed net profit of 96.55 million yuan, down 19.74% year on year, and imputed net interest rate decreased by 3.12 pct to 6.12% year on year; net profit after deducting non-current assets was 84.66 million yuan, up 20.21% year on year, mainly due to non-current asset disposal profit and loss of 51.14 million yuan in the same period last year. Industrial capital holdings have increased frequently, and the equity structure is expected to be optimized. From April 24 to October 24, 2018, CICC increased its holdings by a total of 233.38 million shares, accounting for 8.14% of the total share capital. Currently, CICC holds a total of 607.088 million shares of the company, accounting for 21.18% of the total share capital. Changjia Group holds a total of 49.272 million shares of the company, accounting for 17.19% of the total share capital. Meanwhile, the company's largest shareholder, Jiaotong University Industrial Group, and the People's Jiaotong University Enterprise Management Center, which acted in concert, held a total of 64.9163 million shares of the company, accounting for 22.65% of the total share capital. It can be seen that the company's private capital shareholding ratio is already similar to that of the controlling shareholders. In May, the “Guiding Opinions on the System Reform of Enterprises Affiliated to Colleges and Universities” was reviewed and approved, calling for a comprehensive clean-up and regulation of enterprises belonging to colleges and universities, clarifying the relationship between property rights and responsibilities, and promoting the marketization process of affiliated enterprises. Recently, Ziguang University has already begun the transfer of controlling interest. As the reform of enterprises belonging to colleges and universities progresses, the state-owned property structure will be further optimized, which is expected to unleash enterprise vitality and enhance enterprise competitiveness. The company plans to change its name to “Onli Education” to highlight the characteristics of education services. The company restructured the assets of Onli Education in July 2014. The main business focuses on education services, and continues to increase the rectification and divestment of non-education industries. As of 2017, the company's education service business accounted for more than 85% of revenue and more than 100% of net profit. Among them, Onli Education accounted for more than 80%. Onli Education is the company's main business and the pillar of its position in the industry. In order to be more in line with the company's development direction and strategic positioning and reflect the characteristics of the company's education service business, the company plans to change its name to “Onli Education”. Investment recommendations Due to the reduction in investment income from the company's holdings of Jiaotong University Onli shares during the year, we adjusted our profit forecast. The estimated net profit attributable to the company in 2018-2020 was 1.17/1.69/235 million yuan, corresponding to EPS of 0.41/0.59/0.82 yuan/share, respectively, and corresponding PE of 47/32/23 times (based on 2018/10/30 closing price). Currently, the education and training industry is in the national rectification stage, which affects the speed of building new campuses in the short term, but after the long-term reshuffle of the industry and raising the threshold, it is conducive to concentrating market share on leading enterprises. As a leading education and training brand in Shanghai, Onli enjoys a certain advantage. Maintain a “prudent increase in holdings” rating. Risks indicate the risk of uncertainty brought about by stricter policy supervision, the risk that business development falls short of expectations, the risk of increased market competition, and the risk of brain drain.