Performance summary: in the first three quarters of 2018, the company achieved an operating income of 830 million yuan, an increase of 3.2% over the same period last year; a net profit of 150 million yuan, a year-on-year increase of-16.3%; and a net profit of 110 million yuan, a decrease of 27.0% over the same period last year. The company expects to achieve a net profit of 150 million yuan to 210 million yuan in 2018, a decrease of 20% over the same period last year-an increase of 10%.

Revenue increased steadily in the first three quarters of 2018, and the adjustment of business structure led to a slight decline in gross profit margin: the company achieved operating income of 830 million yuan in the first three quarters of 2018, an increase of 3.2% over the same period last year; from a quarterly point of view, Q1-Q3 achieved operating income of 216 million yuan (YOY+20.02%), 305 million yuan (YOY+3.39%) and 304 million yuan (YOY-6.31%), respectively, and the revenue growth rate slowed down in the third quarter compared with the same period last year. In the first three quarters of 2018, the net profit was 150 million yuan,-16.3% compared with the same period last year, and the non-return net profit was 110 million yuan, a decrease of 27.0% over the same period last year. From a quarterly point of view, Q1-Q3 achieved a net profit of 30.95 million yuan (+ 15.21%), 65.12 million yuan (- 15.31%) and 51.03 million yuan (YOY-29.19%) respectively in 2018. The growth rate of the company's profit end in the first three quarters was lower than that of the revenue end, mainly due to the increase in the sales share of LED products in the company's digital splicing wall business structure, resulting in a decline in the overall profit margin. The company expects to achieve a net profit of 150 million yuan to 210 million yuan in 2018, a decrease of 20% over the same period last year-an increase of 10%. The main reason is that the company has increased its investment in the operation and management service of kindergarten in the exploration of hosting mode, the building of professional team, the research and development of teaching products and the construction of intelligent preschool education platform, which is expected to push up the cost of the company. In addition, as the Golden Cradle exceeded its performance commitment in 2016-2017, the company will plan and complete the three-year performance commitment incentive bonus in 2018 in accordance with the previous agreement, which will be listed as management expenses, which is expected to have a certain impact on the company's annual performance.

The electronic video business has developed steadily and remains in the leading position: since its listing, the company has been focusing on the DLP electronic display spliced screen market, with a market share of more than 30%. In terms of VW business-related products, the company continues technological innovation to maintain the market competitiveness of VW business products; in terms of display products, the company released a new generation of DLP display units using tricolor laser light sources. In terms of software and service business, the company aims at public safety, high-speed and financial industries, and ultra-high resolution visual command and dispatching software ViSmart, and has successively completed customized development, including the integrated software and hardware solution for the high-end intelligent distribution network of Beijing City Sub-Center, the visual comprehensive display platform for the development of Jinan Rail Transit Line R1, and remains in the leading position in the market.

The park takes the lead in coverage and has a significant advantage based on the middle and high end. The company is the country's leading kindergarten operation and management service provider, serving and managing nearly 5200 kindergartens, ranking first in the industry in total. Among the 238000 kindergartens in the country, the company has a market share of about 2%. The company's hosting kindergarten is located in the middle and high end, concentrated in first-and second-tier cities, and has a significant first-mover advantage. In 2015, the company strategically acquired Hongying Education and Golden Cradle; in 2017, the company acquired Kerr Education and Dingqi Education, laying out the area of children's growth. In the first half of 2018, the net profits of Hongying Education, Golden Cradle, Ker Education and Dingqi Education were 12.5 million yuan (YOY-54.38%), 51.596 million yuan (YOY-8.2%), 21.11 million yuan and 7.36 million yuan, respectively. The decline in the performance of Hongying Education is mainly due to the promotion of strategic transformation in 2018, the active suspension of joining in business development leads to a decline in income, and the increase in business expenses leads to an increase in costs. The decline in the performance of the golden cradle is mainly due to the renovation of some parks and the restrictions on access to venues in some kindergartens affected by policies, resulting in a slight decline in the number of signing orders and a decline in income; and the cost of talent replenishment and reserve promoted by some parks has increased. Both Keer Education and Dingqi Education have maintained steady growth. In the future, based on the existing layout of kindergartens, they will expand their key areas. About 50% of the performance commitments have been completed in the first half of the year, and it is expected that the annual performance commitments will be fulfilled.

Profit forecast and rating. Due to the company's strategic transformation promoted by Hongying Education in 2018, and increased investment in the research and development of teaching products and the construction of intelligent early childhood education platform, we lowered our profit forecast and estimated that the EPS in 2018-2020 will be 0.22,0.25,0.29 yuan respectively, maintaining the "overweight" rating.

Risk hints: the risk of industrial policy change, the risk of increased market competition, the risk of business expansion or falling short of expectations, the risk of performance commitment or falling short of expectations.