I. Overview of events

The company issues the 2018 annual report and the 2019 quarterly report. In 2018, the company achieved operating income of 1.185 billion yuan, an increase of 5.92% over the same period last year, while the proportion of revenue from education business dropped to 65.56%. The net profit lost 1.366 billion yuan, down 2158.59% from the same period last year. The sharp decline in net profit is mainly due to the provision of 1.288 billion yuan for the impairment of goodwill in long March education, including Haiyantian Science and Technology, Fire solution Information and long March education. 2019 Q1 realized an operating income of 251 million yuan, an increase of 5.96% over the same period last year, and a net profit of 11.8019 million yuan, an increase of 351.31% over the same period last year.

II. Analysis and judgment

Cooperate with Huawei to promote the construction of educational informatization 2.0 demonstration site and the coordinated development of B-end and C-end business.

In terms of B-end intelligent education business, based on Huawei Cloud, the company has created three benchmark demonstration sites for educational informatization 2.0 achievements-Changsha online Learning Center, Yiyang Wisdom Education and Tongren Wisdom Education Cloud platform. At present, Changsha online Learning Center for Primary and Middle School students has presented more than 3000 curriculum packages, covering more than 800 schools in Changsha, gathering more than 140000 students. It is expected to replicate this model for rapid expansion and thickening performance in the future. In terms of C-end business, 717 smart campus schools were built in 2018, with a total of 1221, and the number of users increased from 308300 to 602300, representing a growth rate of 95.4%. The number of users of wonderful pen composition increased from 489000 to 612000, a growth rate of 25.1%. In addition, the intelligent campus ROBO all-in-one solution jointly created by the company and Huawei will add personalized intelligent design to the company's original smart campus teaching management solution to promote business expansion.

Successively won the bid for large-scale computer examination service projects, the leading position of the industry is stable

2018 is the first year for the implementation of the national unified legal professional qualification examination. Haiyuntian Science and Technology successfully won the bid for the national unified legal professional qualification examination national computerized examination technical service project in May 2018. In September, Haiyuntian Science and Technology successfully completed the national unified legal professional qualification examination objective questions computerized examination technical service in 303 examination districts, 916 examination centers, 10748 examination rooms and more than 604000 candidates in 31 provinces (autonomous regions and municipalities), Xinjiang, Hong Kong and Macao. Recently, Haiyuntian won the bid for the computerized examination of the National Unified legal Professional qualification examination in 2019-2021, which is expected to bring nearly 200 million yuan in sales revenue for Haiyuntian Technology in the next three years (excluding provincial machine fees and invigilation fees), which will further increase the performance. In addition to the judicial examination, Hai Yuntian has successively won the bid and signed a number of other national computer examination services, including the 2018-2020 securities industry qualification examination computerized examination service project, the 2018 accounting professional technology paperless examination and marking technical service project, as well as the national CET-4 and CET-6 service project.

III. Investment suggestions

Upgrade to the recommended rating. The company reported a net profit growth rate of 351.31% in the first quarter, which guided the company's net profit from January to June 2019 to achieve a year-on-year growth rate of 50%. The China National report expects to achieve a net profit of 2139-28.5152 million yuan. Considering that the company has strong channels and high-quality educational resources for many years, as a leader in the examination service segment, it will continue to carry out in-depth cooperation with Huawei in the field of educational information compared with large-scale projects that have won the bid. It is estimated that the EPS for 2019-2021 will be 0.14, 0.19, 0.23, and the PE corresponding to the current price is 49X/35X/29X, which is higher than the comparable company's 19-year median valuation of 39X (wind data). However, considering the high certainty of the company's performance this year and the good prospect of cooperation with Huawei in the field of education information, we will consider upgrading to the recommended rating.

Fourth, risk tips:

Industry competition intensifies; business expansion falls short of expectations