Event: Company announcement 2020 three-quarter report, Q3 achieved operating income of 590 million yuan, YOY +39.7%, net profit of 1,26,000 yuan, and YOY -94%; achieved operating income of 1.3 billion yuan, YOY -1.7%, net profit of 93.5 million yuan, and YOY -257.1% in the first three quarters. Comment: 1. Performance was hampered by the divestment of the business, and the receipt of 250 million equity transfers relieved cash pressure. On the revenue side, the company achieved operating income of 1.3 billion yuan, YOY -1.7%, Q3 revenue of 590 million yuan, and YOY +39.7% in the first three quarters. The revenue side recovered in the third quarter. On the profit side, the company's gross profit margin for the first three quarters was 27.3%, -12.3pct, and net profit margin -7.2%, year-on-year -11.7pct. We believe that since the company is in a period of strategic transformation focusing on large languages and divesting non-core businesses, the education informatization business, which accounted for a relatively large share of revenue, was greatly affected by the epidemic in the first three quarters of this year. However, at the same time, the large language business was in a period of rapid development, personnel increased, and overall operating costs and management expenses rose, or were the main cause of losses. As of the end of the third quarter, the company's monetary fund balance was 176 million yuan. On October 28, the company announced that it had received a second instalment of 250 million yuan from the equity transfer price receivable when the information security business was spun off in 2018, which will help ease the pressure on cash flow. 2. The business situation in Big Language Q3 improved significantly compared to Q2. It is expected that Q4 will continue to improve. The major language business confirmed revenue of 320 million yuan in the first three quarters, and Q1/Q2/Q3 was 0.9/09/140 million respectively. The total number of students enrolled in the first three quarters was 212,000, YOY +124%, of which 117,000 in the first half of the year, YOY +127%, Q3 95,000, and YOY +122% (the number of participants did not include Mingxi Language absorbed and merged during the pandemic. Mingxi Language currently has 2,793 long-term students, and is expected to start confirming income in 2021, so it is not included in the number of paying students). By business, the Q3 revenue of the four major branch/online/B2B/franchise businesses was 7553/3897/2121/7.47 million yuan, while revenue for the first three quarters was 170 million/73.83 million/58.28 million/24.59 million yuan. Among them, TOC's branch business and online business are the focus, and the total revenue share has always exceeded 70%. Branch business: The offline branch business is the basic market, with Q3 revenue accounting for 53%, the cumulative number of students enrolled is 33,000, Beijing accounts for more than half (17,000), and Shanghai, Shenzhen, Changsha, and Xi'an have 1403/1072/1445/609 visitors. The cumulative number of students enrolled offline in non-TOP5 cities reached 12,000 in the current period. Online business: There was rapid development during the pandemic, with Q3 revenue accounting for 27%, a cumulative total of 610,000 students, and more than one-third (23,000) of visitors with high unit prices of 5,000 yuan or more. The company's online business prices are clearly stratified, forming a customer acquisition conversion funnel: 1) An online six-person class that is essentially an “air branch” (ARPU value of 11,400 yuan, pricing and APRU values are the same as offline branches). The cumulative number of students enrolled in Q3 was 6801. Using innovative forms of online enrollment, online large class classes, and online 6-person small class services, the number of students growing by 10% month on month. If the online six-person class is regarded as an “air branch” and enters the branch ranking, the total number of students is ranked 10% month-on-month. (After Beijing), the number of Wang Zheban ranked second and increased The speed is number one, and the number of people is expected to rival Beijing schools next fall. The company expects the air branch to generate 150 to 250 million yuan in revenue in 2021. The expansion of the Air Branch has also solved the problem that it is difficult to expand offline during the pandemic to a certain extent. 2) Online celebrity courses (ARPU value greater than 5,000 yuan), total number of students enrolled in Q3 was 2951; online school live streaming courses (ARPU value greater than 5,000 yuan), with a cumulative total of 14,000 students enrolled in Q3. 3) Online short-term courses (ARPU value less than 5,000,), with a cumulative total of 38,000 students enrolled in Q3, including online special courses such as Doushen synchrony, Doushen listening, short video courses, and quick reading (ARPU value 150-1200 yuan). The total number of students enrolled in this type of special course reached 200,000 throughout the year. Through low ARPU value products, the company relied on public accounts, Douyin, Kuaishou, Himalaya and other channels to reach a total of 17.06 million users. Looking ahead to Q4 and 2021: The number of applicants for Q3 was 109,000, YOY +78%, partly due to the delay in the April-June registration peak. According to the company's announcement, the number of students enrolled in the fall semester has exceeded the same period last year, and we believe that Q4 confirmed revenue is expected to increase year over year. At the end of October and November, there is a small peak of registration throughout the year. The company has already launched the “Big Language Festival” enrollment campaign. If the registration situation is good, it is expected that growth will rebound next year, so we recommend that you pay attention. 3. Profit forecast and investment rating: We are optimistic about the development space of the K12 extracurricular training industry, especially the big language circuit, and the advantages of the Doushen language team in teaching research and development and teacher teams. Considering non-core business divestment matters, the company's net profit for 2020/2021/2022 is expected to be -54.91/158.77/335.44 million yuan, and EPS is -0.06/0.18/0.39 yuan, maintaining the “recommended” rating. Risk warning: risk of public health events, risk of macroeconomic downturn, risk of fixed growth not progressing as expected, risk of offline expansion not meeting expectations, risk of falling stock prices due to shareholders' holdings reduction, risk of impairment of goodwill, risk of business divestment falling short of expectations, risk of loss of core personnel, risk of loss of core key personnel, risk of declining industry valuation center, risk related to controlling shareholders, etc.