Company News The company released its 2019 Q1 quarterly report. Q1 achieved revenue of 356 million yuan, an increase of 50.94%, and attributable net profit of 22.15 million yuan, an increase of 32.31%. Event review Hengqi & CUHK Talent Q1 revenue increased by 50% +, and the unit price of admissions and customers rose sharply. Company Q1 achieved revenue of 356 million yuan, an increase of 50.94%. Specifically, Hengqi's education revenue was 301 million yuan, an increase of 55.90%, mainly due to the continued strength of online education, which led to a sharp increase in revenue. Among them, Tianhu Education's revenue was 54.33 million yuan, an increase of 114.56%; the revenue of CUHK talents was 21.21 million yuan, an increase of 58.99%, mainly through promotion activities for all staff and additional study courses, etc.; instrument and instrument business; revenue 34.46 million yuan, an increase of 14.06%. Vocational education accounts for more than 90% of total revenue. Hengqi Education Q1 enrolled 46,000 students, an increase of 18%. The transaction price was 7697.41 yuan/person, an increase of 6.4%, and achieved a sales return of 364 million yuan, an increase of 29.2%, and a revenue ratio of 1.21; CUHK Talent Q1 had 96,000 online transactions, an increase of 25.83%, and a unit price of 257 yuan/person, an increase of 14%, achieving order sales payback of 246.45 million yuan, an increase of 51%, and a revenue ratio of 1.16. At the end of the period ended, the company's book advance balance was $313 million, up 7.80% from the beginning of the period. In Q1, the gross margin of Hengqi and vocational education increased by about 18%, and the company's quarterly gross profit margin was 75.3%, an increase of 8.4 pct over the previous year. On the one hand, the share of vocational education revenue with high gross margin continued to rise. On the other hand, the gross margin level of the vocational education sector itself rose further. Among them, the Q1 gross margin of Hengqi and CUHK talents was 77.90% (+7.25pct) and 60.69% (-2.05pct), respectively. The company's sales/management/finance/R&D expenses were +6.6pct/+1.8pct/-2.5pct/+0.6pct to 32.6%/26.5%/3.6%/4.3% respectively. The sharp increase in the sales expense ratio was mainly due to increased promotion investment to expand the market. The increase in the management expense rate was mainly due to the increase in remuneration and related divestment expenses in the manufacturing industry. The increase in the financial cost rate was mainly due to the increase in loan interest rates for Hengqi students. The total cost rate during the company period reached 67.0% (+6.5 pct). Due to the expiration of the high-tech enterprise qualification certification for Hengqi and CUHK talents, the income tax calculation in Q1 was temporarily based on the 25% tax rate, resulting in an effective tax rate of 33.3% in Q1, an increase of 1.4 pct over the previous year. It is expected that both Hengqi and CUHK talents will pass the high-tech enterprise review during the year. Q1 The company achieved attributable net profit of 22.15 million yuan, an increase of 32.31%. Specifically, the profit contributed by Hengqi was 25.8645 million yuan, an increase of 17.82%; CUHK talents (also 70%) contributed profit of 2,391,900 yuan, an increase of 18.81%; the original manufacturing industry lost 5.4938 million yuan, mainly due to the cancellation of subsidiary Kaiyuan Mechatronics and the sales situation of intelligent fuel products. Divesting the manufacturing business and building a comprehensive vocational education group In April 2019, the manufacturing business will be divested and no longer merged, and the company will become the target of pure vocational education. On the one hand, Hengqi is deeply involved in the four major businesses of finance, self-examination, design, and IT. The channel side adds 10-20% of campuses every year, and the product side continuously improves the product matrix and continues to expand into multiple categories, middle and high-end. On the other hand, it has actively expanded the circuit. It has already explored new projects such as teacher certification training, the youth era, and online schools for experts. The future plans are to explore and incubate no less than 2-3 new projects every year to evolve into a multi-track, diversified, multi-brand comprehensive vocational education management group. In 2019, Hengqi's target sales return was 1.5 billion yuan, an increase of about 19% over the same period. CUHK talents will strengthen deep online and offline integration with Hengqi, including project pilots, personnel integration, etc., with a sales payback target of 150 million yuan in 2019, an increase of about 51%. The investment proposal maintains the profit forecast. The net profit attributable to the company in 2019-2021 is estimated to be 1.98/2.49/319 million yuan respectively, corresponding to EPS of 0.57/0.72/0.92 yuan/share, respectively, and corresponding PE of 22/18/14 times (calculated at the closing price of 2019/4/29). The company divested the manufacturing industry and became a pure vocational education company. Maintaining a good momentum reflects confidence. Maintaining a good momentum reflects confidence. At this stage, it is expected that the revenue side will maintain relatively rapid growth under repayment guidance, and gradually transform into profit, leading to a steady release of performance. The company is gradually clarifying its business lines and management mechanisms. Future improvements in operating efficiency are expected to bring flexibility to performance. Currently, the valuation is at a low level, there is room for repair, and the “increase in holdings” rating is maintained. Risks indicate risk of impairment of goodwill, risk of change in company control, risk of increased competition in industry, risk of continued loss in IT business, risk of brain drain, etc.