Event: the company released its annual report for 2016. during the reporting period, its operating income reached 977.1611 million yuan, a substantial increase of 122.58% over the same period last year, and a net profit of 102.9437 million yuan, an increase of 9.99% over the same period last year. The substantial increase in the company's performance is mainly due to the significant increase in revenue from the company's EdSaaS business and continuing education business. In 2016, the company plans to pay a cash dividend of 0.26 yuan for every 10 shares.

EdSaas, relay education network force, the scale of income growth by leaps and bounds, the profit margin of the investment period has declined. At the end of 2015, the company completed 100% merger and acquisition of the relay education network, and achieved 252 million in revenue, 84 million in net profit and fulfilled the performance promise in 2016. the company is the leader in K12 teacher training and ranks first in many provinces in the field of distance training. the country continues to increase investment in teacher training, bringing confidence to the steady growth of the education network. At the same time, we also see the brand value and diversion ability that the relay education network brings to the company. The company focuses on the development of EdSaaS business, with revenue of 311 million yuan in 2016, an increase of 190.07% over the same period last year. In the new year, with the landing of various bid-winning businesses, it is expected to maintain a high speed of development. Compared with the high growth of the company's revenue, the gross profit margin and net profit margin of the company declined in 2016. The gross profit margin of home-school interactive upgrade business and EdSaaS business was 32.95% and 14.72% respectively, down 6.44% and 34.96% respectively compared with the same period last year. We believe that the company is in a period of rapid business growth and deployment, and it is more likely to improve its profit margin in the future.

Brand + R & D + all-round investment of talents, aim to build an open service platform. During the reporting period, the company worked hard in brand, R & D and talent to accumulate strength for the company's rapid development: (1) deepen the layout of enterprise brand construction and expand its influence in the field of education through a series of large-scale activities. (2) actively committed to R & D and resource integration, and applied for the construction of a national engineering laboratory, which was approved in April 2017. (3) the company attaches great importance to personnel training. On the one hand, it reconstructs the expert system and creates an expert team of more than 3400 people, including university professors, excellent teachers, famous presidents and garden directors; on the other hand, it strengthens the construction of the echelon of talents. improve the ability of middle and high-level organization and management. In 2016, the company organized 12 special training sessions for talent development to formulate a clear growth plan for employees. Centering on the four business sectors of home-school interaction and upgrading business, EdSaas, continuing education and discipline promotion, we give full play to the collaborative advantages and create an open service platform: on the one hand, the company focuses on platform construction and operation, and drives intelligent platform service capabilities with product iterations and service upgrades. On the one hand, the company has actively improved its market coverage, winning a total of 116projects of "three links" and "two platforms", with a sales contract of about 357.21 million yuan, and a total of 15493 registered schools in the mobile campus portal. Generally speaking, the company is actively practicing its internal skills, and based on the advantages of the school service team, actively upgrade its business and explore a new space for the company's growth.

During the golden period of industrial development, Internet education, educational science and technology have great potential, and educational informationization has been highly valued by the state. First, 2016 is the year of deepening comprehensive reform in the field of education. The work of educational information in the 13th five-year Plan is clear, and it is planned to greatly improve the level of educational information services, education, teaching and management. According to the company's 2016 annual report, the expenditure on educational informatization in China was 233.8 billion in 2015. Comprehensive national educational informatization development goals and Zhiyan consultation forecast the sustained and rapid development of this field. Second, the state attaches great importance to teacher training, and the Ministry of Education clearly spends more money on teacher training. According to the 2016 annual report, the Ministry of Finance and the Ministry of Education explicitly require schools to invest 5% of the total annual public budget in this field. According to the Education Development Research Network, the size of the teacher training market in 2016 is about 36 billion. Third, at the same time, Internet education has maintained a high value-added rate, and the Analysys think tank predicts that the market size will reach 160.1 billion in 2016. At present, the proportion of online education in the field of K12 is low, and the realization of a large proportion of online education and personalized education still needs to be explored and accumulated. Under the background of good industry development, the company is expected to become bigger and stronger through endogenous + epitaxial development.

Investment advice and performance forecast: the company is the domestic K12 online education service leader, business focus on "full class cloud + and education" dual platform strategy, ToB and ToC both have first-mover advantages. In 2016, the company's strategy to develop EdSaaS business, quickly become bigger and stronger. With the steady growth of home-school interactive upgrading business and continuing education business, the company's income scale, market share and brand influence are growing rapidly, and the synergy effect is emerging. We expect that by further deepening the depth and breadth of business coverage, combined with endogenous extension, the company will continue to grow rapidly in the new year, and revenue will maintain a high growth rate while looking forward to a rebound in profit margins. We estimate that the EPS of the company from 2017 to 2019 is 0.33,0.44 and 0.60 yuan respectively. Based on the high growth of the company's existing business, industry leadership and cooperation between business sectors, we value the company 65 times in 2017 and maintain the buy rating corresponding to the target price of 21.45 yuan per share.

Risk tips: transformation is less than expected risk; profitability decline risk; economic downside risk; market risk and so on.