Event: the company announced that it intends to acquire up to 100% equity in Chengdu, and Chengdu Gouda holds 100% equity in Chengdu Seven Middle School Experimental Middle School. Chengdu No. 7 Middle School Experimental School is a large private school with high starting point, high quality, modernization and international standard designed and built in accordance with the national model school standards.

Comments:

Leading market: the company's efficient execution is highlighted under the background of slow M & An in the market as a whole. Since the company acquired Longwen Education, we have been reiterating and recommending diligence to the market. the reason is that we are optimistic about the efficient and leading implementation ability of the executive team, abundant cash resources and abundant project reserves. since then, the company has successively landed / promoted mergers and acquisitions projects such as British International School, Little Red Riding Hood Group and Eddie Group, participated in Siqi Education and Convex Education and won the right of priority. Demonstrate to the market the determination of transformation and the action force of the horse race enclosure to seize high-quality assets, but also further verify our logic, the company closely revolves around the repeated breakthroughs and accelerated layout of mid-and high-end education in the K123field. The company is the first A-share private enterprise to acquire the assets of K12 training school. this time, the company plans to acquire Chengdu Seven Middle School Experimental Middle School again, and will once again become the first A-share enterprise to acquire private private schools. We reiterate that we are optimistic about the efficient landing of high-quality educational assets by the company's management team, and the deep ploughing of the educational layout of K123is worthy of our attention. In view of the company's efficient implementation ability in the field of asset layout, we are also optimistic about the pace of integration and optimization of management and strengthening coordination after the enclosure of high-quality assets.

Chengdu No. 7 Middle School Experimental Middle School: high-quality private school, the first landing A share: Chengdu No. 7 Middle School Experimental School was founded in 2003 with an investment of nearly 300 million yuan by Crown Castle International Corp Group. it is a large private school with high starting point, high quality, modernization and international standard designed and built in accordance with the standards of national model schools. The school is strongly led and exclusively managed by Chengdu No. 7 Middle School, a nationally renowned famous school, and makes full use of the high-quality educational resources of Chengdu No. 7 Middle School. The two schools have realized "resource sharing, management docking, teachers' joint construction, and students' common development". The school has been awarded the honors of "Ten Outstanding Private Schools in China" and "the first hundred Best characteristic Schools in China". It has primary school, junior high school, high school and international department, and Qiwen Kindergarten affiliated to Chengdu Seven Middle School Experimental School. At present, there are more than 5800 students and more than 800 faculty members. In terms of enrollment rate, the undergraduate rate in the 2015 college entrance examination exceeded 97%, ranking first in Chengdu. Chengdu No. 7 Middle School Experimental School is an excellent private school, and it will also become the first large-scale excellent private school to enter a listed company through acquisition. In the future, the successful establishment experience of Chengdu No. 7 Middle School Experimental Middle School is expected to accelerate the expansion of high-quality educational resources throughout the country, provide valuable experience and high-quality and rich educational content resources, and highlight the brand effect of word-of-mouth. Combined with the charging situation, we predict that the average per capita fee (including tuition, accommodation, living expenses, escrow fees, etc.) is about 42000 yuan, and the net profit level is estimated to be about 85 million yuan according to the profit margin forecast of about 35-40%.

Its educational assets are market-leading, senior executives' transformation and landing determination to help replicate expansion: as the market believes, the growth of educational assets depends on the rapid growth of the number of schools and students and the increase of per capita ARPU value brought about by cross-regional expansion. In particular, brand schools will also enjoy better bargaining power, and word-of-mouth and brands will also directly affect the pace of company expansion. The pace of replication and expansion directly affects the growth of the performance of listed companies, which requires the company to make efforts in management, asset coordination and resource integration, promote around the brand, and integrate many of its educational assets in terms of teachers, ideas, content, region and other high-quality resources. The company has promoted the integration of Longwen Education, British International, Little Red Riding Hood, Eddie Education Group, Siqi Education and Convex Education, Chengdu Seven Middle School Experimental Middle School and other high-quality education assets around high-end kindergartens, primary schools, junior high schools and senior high schools. The pace of the company's landing exceeds market expectations, executives continue to demonstrate their determination, and will protect the subsequent replication and expansion of high-quality educational assets across the country; the integration of its high-quality educational resources will also strengthen the reputation of frequently used educational brands. In addition, the second shareholder of the company, Huaxia Life Insurance, enters through a fixed lock-up for three years, and its shares are still locked up, so we are still concerned about the sound operation of the company and the release of educational assets in 2017.

Profit forecast and valuation: assuming that we consider the performance preparation of the existing educational assets (that is, Longwen, British, Little Red Riding Hood, Eddie, Cheng Seven Middle School, etc.), we expect that the test preparation performance of the company's assets from 2016 to 2018 is 48 million yuan, 582 million yuan and 705 million yuan, respectively, and the corresponding pre-valuation is 285 ×, 23 ×, 20 × PE respectively. We believe that the company's leading position in education is prominent, integration and coordination will be actively carried out after horse racing enclosure, economies of scale and first-mover advantages will be highlighted, and the current valuation is only about 23 times, which is obviously undervalued. We will give it a valuation of about 35-40 times in 2017 and maintain a highly recommended rating.

Risk tips: the LED industry recovers slowly, the project does not meet expectations, and it is difficult to integrate.