Event: Qinshang Optoelectronics and Convex Education and Siqi Education respectively signed a "Capital increase / acquisition Memorandum", intending to increase their capital and / or acquire no less than 10% of their respective shares in cash, and agreed that after the company completed its initial shareholding, in the future, it is planned to complete the acquisition of the remaining equity of Convex Education and Siqi Education by issuing shares to purchase assets and cash payment. The initial valuation of this transaction is: the top 260 million for concave-convex education and the top 600 million for Siqi education.

Asset introduction:

1. Siqi education

[company profile] Siqi Education, founded in 2009, headquartered in Changsha, Hunan Province, is a training institution focusing on extracurricular tutoring education in primary and secondary schools. Siqi Education currently has business sections such as cultural excellence, personalized education, international education, music education, art education, full-time education, subject English education, Chinese studies and Chinese arts. Siqi Education, equipped with unified brand, unified teachers, unified teaching materials, unified service and unified management, is one of the high-quality educational institutions in China.

[campus Distribution] Siqi Education has 67 campuses, including 49 in Changsha, 6 in Zhuzhou, 6 in Hengyang, 2 in Yueyang, 2 in Loudi, 1 in Changde and 1 in Wuhan. It has become the largest and most well-known extracurricular tutoring and training institution in Hunan.

Comments:

The acquisition of Guangzhou Longwen opens a new chapter in the layout of "semiconductor lighting" + "education". Qinshang Optoelectronics is a semiconductor lighting products and integrated solution provider, the main business is LED functional lighting. In 2016, the company acquired 100% stake in Guangzhou Longwen and cut into the field of K12 extracurricular tutoring and training in the education industry. In recent years, due to the impact of macroeconomic and weak growth of semiconductor lighting industry and other factors, the company's operating income and profits have declined. The K12 extracurricular tutoring and training industry has reached 23% of CAGR in the past five years and is expected to maintain rapid CAGR17% growth in the next five years. The acquisition of Guangzhou Longwen will open up a profit growth point for the company in emerging industries, which is expected to bring continuous improvement in profitability, and the company has begun to form a dual-main business layout of "semiconductor lighting" + "education".

As a leading K121-to-1 extracurricular tutoring institution, Guangzhou Longwen has passed the period of business adjustment and opened a new stage of rapid development. The company completed the acquisition of 100% equity in Guangzhou Longwen this year, successfully realized the transformation into the field of K12 extracurricular tutoring in the education industry, and officially opened a new chapter in the dual-main business layout of "semiconductor lighting" + "education". Guangzhou Longwen is the top three brand organization in the one-to-one extracurricular tutoring industry in China. From 2011 to 2012, in order to quickly seize market share, a large-scale network expansion was carried out, but the corresponding lack of high-quality teaching resources and management talent led to the poor profitability of some outlets. Since 2013, Guangzhou Longwen has implemented a strategic adjustment, starting to close unprofitable outlets, reducing the number of outlets from 699 in 2013 to 479 in 2015, and its operating income has also decreased from 853.09 million yuan to 700.15 million yuan. However, in the process, the annual point income increased from 1.22 million yuan to 1.46 million yuan, and the class fee in first-tier cities increased from 192 yuan per hour to 219 yuan per hour. According to the performance commitment of this acquisition, Guangzhou Longwen promised that the cumulative net profit after tax from 2015 to 2018 would not be less than 563.8 million yuan. We believe that the company has gone through the business adjustment stage of network streamlining and resource integration, and has begun to enter a new stage of rapid development.

Plan to buy Siqi Education and Convex Education after equity participation, and add heavyweight partners to K12 extracurricular tutoring business section. Since its establishment in 2009, Siqi Education has focused on providing the most professional K12 extracurricular tutoring training for primary and secondary school students, ploughing the Hunan area, and has now developed into a K12 extracurricular tutoring and training institution with the largest scale and the highest trust of parents in the province. Join forces with regional leaders to inject strong team strength and professional ability into the development of the company's K12 extracurricular tutoring business. Concave and convex education is committed to using the latest educational science and technology to bring the resources of first-tier teachers to the country's second -, third-and fourth-tier cities, forming a complete set of remote expansion business model and cross-regional operation and management model. The cooperation with concave and convex education is conducive to the business layout and development of the company in the second, third and fourth tier cities, as well as the coordinated development of content and channels among the company's partners in the future.

We will continue to enter the field of international education and early childhood education, and strive to achieve the one-stop strategic layout of the whole industry chain of Kmur12 education services. Following the acquisition of Guangzhou Longwen, frequently Optoelectronics announced the acquisition of British Education, Little Red Riding Hood Education and Eddie Education. British Education owns 100% of the pre-Academy of Sciences, an established American international school in Shenzhen and renowned in the field of international education in Shenzhen and southern China. Little Red Riding Hood Education is a kindergarten management and operation brand, with about 75 directly operated kindergartens and 33 trusteeship and joining kindergartens. Eddie Education is a professional company engaged in international education investment in China, providing one-stop systematic international education from kindergarten to grade 12, which is well-known in the field of international education in China. At the same time, Eddie is also the official test center for the five major international exams, including IELTS,WACE\ TEE,A-LEVLE, TOFEL and ACT. If the acquisition is successfully completed, Photoelectricity will enter the field of international education and early childhood education after extracurricular tutoring with K12, and strive to achieve the one-stop strategic layout of Kmur12's complete 15-year education service industry chain.

Firmly optimistic about the long-term development of the company and maintain the "prudent recommendation-A" rating. We expect the company's net profit from 2016 to 2018 to be 0.58 Universe 2.03 / 261 million yuan respectively, corresponding to PE 262X/75X/58X respectively. If the merger time of Guangzhou Longwen in 2016 is taken into account and if the subsequent acquisition in 2017 can be successfully landed (Eddie Education will not be included for the time being due to the lack of a specific transaction plan), the net profit of the exam preparation for 2016-2018 is expected to be 1.48pm 2.59 / 316 million yuan respectively, corresponding to 103X/59X/48X respectively. If the acquisition and equity participation of Eddie Education, Convex Education and Siqi Education are successfully landed, the profit volume of the education business sector of listed companies will reach about 425 million yuan in 2017. With steady extension and strong execution, the company is expected to become the leader of the education industry that runs through the layout of the whole industry chain of KMui 12 education services. Maintain the "prudent recommendation-A" rating.

Risk hint: the performance is not up to expectations; the epitaxial acquisition is not as expected.