The company's performance in the first half of the year was greatly affected by the pandemic. With the gradual resumption of offline classes, demand recovery, and the launch of the industrial sector in August, the company is expected to get back on track. In the future, the company is expected to return to the right track. In the future, it will continue to invest in international education groups with synergistic effects, integrate capital, resources and talent advantages, and gradually establish and consolidate a leading position in the education segment. Strong growth can be expected. Short-term performance has been greatly affected by the pandemic. 1) Revenue and profit: 1H20 had revenue of 127 million yuan (-54.12%), of which the education consulting business accounted for 61.0% (-11.8pcts) and net profit of 23 million yuan (-166.58%). Excluding losses in the industrial sector, the net profit of the education business was 121 million yuan/ -78.8%. In 2Q20, the company's revenue was 6.939 billion yuan/ -54.6%, and net profit was 18 million yuan/ -204.2%. 2) Profitability: Gross margin decreased by 19.3 pcts to 47.37%, of which the gross margin of the education/industrial business was 63.50%/21.85%, respectively, down 11.2/23.4pcts. The sales expense ratio is 12.30% (+4.4pcts); the management fee rate is 40.03% (+17.5pcts). The increase in the cost ratio is mainly due to the relatively rigid costs of employee remuneration and office space rent. Out of 1H20 sales and management expenses, employee remuneration and rental expenses totaled 41 million yuan, accounting for 32% of revenue. Overall, the net interest rate fell by 30.4pcts to -17.98%, and the company as a whole was greatly affected by the epidemic. 3) Cash flow: 1H20 had a net operating cash outflow of 95.61 million yuan, and the book capital as of the end of June was 428 million yuan/18.6% decrease from the end of 19. Megim's profit declined significantly in the first half of the year, and the pace of opening stores continued. 1) 1H20H Megam's revenue was 56.86 million yuan/ -67.93%, net profit was 17.34 million yuan/ -81.17%, and net profit margin was 30.50%, a decline of 21.43 pcts. As of 1H20, the number of Megim's contract centers in mainland China reached 535 (11 more than at the end of 19, mainly in third- and fourth-tier cities), and continued to buck the trend under the pandemic. The decline in performance was mainly due to the impact of the epidemic. The blocking of classes at offline outlets dragged down revenue. At the same time, the company waived initial licensing fees for all domestic franchise, direct management, and trusteeship centers in the first half of the year, reducing pressure on franchisees. 2) Kaide Education grew brilliantly, with 1H20 revenue of 20.6 million yuan (-14.2%), net profit of 3.99 million yuan (-42.9%), and a net profit margin of 19.4%/-10.5 pcts. 3) Industrial sector revenue is 49 million yuan (-34.1%), net profit - 44 million yuan. Sell the industrial sector, focusing on the main business of education. The company sold its subsidiary Dalian Sanlei Technology (an industrial sector subsidiary) to Mr. Yu Jianmo and Mr. Jin Bingduo at a price of RMB 249 million in August 2020, and has completed the business change procedures. Considering the loss situation in the industrial sector, the sale will improve the company's overall profit and increase profitability. At the same time, the company can also focus more on the main education business and invest more resources and energy in developing the education business. In August, a strategic cooperation agreement was signed with Huazhong Normal University to strengthen cooperation in the fields of teacher training and industrial development. Offline classes are gradually resuming, and it can be expected that many brands will gain strength and grow in the future. Affected by the epidemic, the company's offline business was suspended. At the end of January, the “Megim Online” WeChat Mini Program was quickly launched to fill gaps in online business and provide online services to members in a timely manner. During the reporting period, the total number of online users reached nearly one million, and more than 80% were new users. Online business prices are relatively low, target a wider market, accelerate brand decline, gradually enrich online content, and strengthen collaboration between online and offline. Offline centers have gradually resumed classes as the epidemic has resumed. They are located in parts of Beijing, Hebei, Xinjiang, and Heilongjiang. The rest of the regions have basically resumed classes. The number of centers that have resumed classes is 418, and sales have recovered by more than 90% in August. In addition, the sub-brand “Little Jim” was launched, which developed out of place with the main brand and strengthened the layout of Tier 4 cities and below. Up to now, 8 centers have signed contracts. In the future, the three major brands will work together to further expand their market share, and growth can be expected. Risk factors: 1) Demographic risk, continued sluggishness or even negative growth in the birth rate; 2) the risk that education business development falls short of expectations and industry competition will intensify; 3) the risk of further losses in the original industrial business. Investment suggestion: After the company establishes the industrial sector, it will focus more on the main business. As the impact of the epidemic gradually subsides and teaching centers gradually resume classes, the company is expected to return to the right track. In the future, the company is expected to return to the right track. In the future, it will continue to invest in mergers and acquisitions of international education groups with synergistic effects, integrate capital, resources and talent advantages, and gradually establish and consolidate a leading position in the education segment. Strong growth can be expected. Considering the impact of the epidemic and the announcement of the industrial sector in September, the EPS forecast for 2020-21 was lowered to 0.09/0.32 yuan (the original forecast was 0.52/0.66 yuan), and the 2022 EPS forecast was added to 0.40 yuan to maintain the “increase in holdings” rating.