The company issued an announcement on September 25 to replace senior management (including the chairman, general manager, chief financial officer, as well as employees and non-employee representative supervisors); in addition, it will strengthen foreign investment and set up a holding company to lay out a new track for colleges and universities. and prepare for the construction of ordinary high schools; in addition, private equity funds will be set up together with Maple Stone Investment Fund to screen, reserve and cultivate high-quality assets for the company's strategic implementation. The above series of major events, including senior personnel changes, indicate that the company is further divesting its manufacturing business and continuing its large-scale expansion of its education business.

Dong Jiangao's team has changed greatly, and most of the new executives are former education executives of Heng Enterprises. 1) changes in the board of directors: Luo Xudong resigned as director and chairman of the company; Jiang Yong no longer served as vice chairman and general manager of the company; and he Longjun resigned as director and chief financial officer of the company. The board of directors unanimously elected Jiang Yong as the chairman of the company, Zhao Jun as the general manager of the company, and Ding Fulin (the former chief financial officer of education of Heng Enterprise) as the chief financial officer of the company. at the same time, it is proposed to adjust the board members of the wholly-owned subsidiaries Heng Enterprise Education, CUHK talents and holding Sun Company. 2) personnel change of the board of supervisors: due to the divestiture of the company's manufacturing industry, Hu Guangbin, chairman of the board of supervisors, resigned as supervisor on behalf of staff and chairman of board of supervisors, and long ailing and Chen Fangchi resigned as non-representative supervisors. The board of supervisors elected Xiao Yuehong and Liu Jiaxin as candidates for non-employee representative supervisors of the third session of the company's supervisory board, while the employee representative supervisors were elected by the company's workers' Congress. Among them, Ms. Xiao Yuehong is the capital manager of Heng Enterprise Education, and Ms. Liu Jiaxin is the Industrial and Commercial Affairs Manager of the Investment Law Center of Heng Enterprise Education. We believe that the change of the core executives is a sign of the company's overall focus on education business, a significant improvement in the governance structure, and the starting point for the return of the company's center of gravity.

We will strengthen foreign investment, expand the business chain of vocational education, and prepare for the establishment of high-quality ordinary senior high schools. 1) set up the holding Sun Company and lay out the new track in colleges and universities: in order to expand the educational industry chain of Heng Enterprise Education and improve the professionalism of curriculum development, the company plans to set up the holding Sun Company "Guangzhou Kai Curriculum Education Technology Co., Ltd." with its own capital of 8 million yuan as a platform for Heng Enterprise Education to get involved in the operation of intelligent education in colleges and universities. It will have a positive impact on the future operation of the company and bring new profit growth points. 2) prepare for ordinary high school and lay out the field of ordinary high school: the company plans to set up a joint venture with Pan Guoping and a designated third party to set up a private ordinary high school. Pan Guoping is the legal person of Chucai education. Chucai education is mainly engaged in college entrance examination tutoring, self-examination, adult education and accounting. After the divestiture of the company's manufacturing assets, a total of 27287.11 square meters of industrial land in the old industrial park is basically idle, with a building area of about 48,000 square meters, a total fixed assets of 73.49 million yuan, and an annual depreciation and amortization expense of about 4 million yuan. Considering the operation and maintenance costs and costs of the industrial park, the annual cost is close to 6 million-8 million yuan. This investment will quickly and effectively activate idle assets, reduce the company's depreciation and amortization expenses and create new economic growth points; at the same time, the layout of high-quality ordinary high school areas is conducive to the expansion of the company's education business.

Set up a fund to screen, reserve and cultivate high-quality assets for the company's strategic implementation. 1) event: the company plans to set up a private equity fund with Hunan Fengshi Investment Fund to promote the strategic development of the company. 2) Overview of the joint establishment of the fund: with the Fengshi investment fund as the manager of the private equity fund, the total contribution of all the partners of the proposed fund is RMB 1 billion, of which the company subscribes to RMB 200 million and the Fengshi investment fund subscribes to RMB 10 million. The rest of the contribution will be raised separately. 3) Investment direction and purpose of the fund: the fund will focus on the strategic development plan of the company, pay attention to and invest in high-quality enterprises or project investment opportunities in education-related industries, take vocational education, private high schools, private universities and other education industry chain as the main investment direction. The purpose is to invest, incubate and integrate the small and medium-sized enterprises with innovative model and good growth, so as to screen, reserve and cultivate high-quality assets for the company's strategy.

Risk factors: the risk that the business model adjustment is not as expected; the risk of intensified competition in the vocational education and training industry.

Investment suggestion: the company is expected to complete the divestiture of the manufacturing business in 2019, and carry out a large-scale expansion of the education business, the governance structure has been significantly improved, and the medium-and long-term fundamentals will improve. Maintain the company's 2019-21 forecast net profit of 76 million / 146 million / 204 million yuan, corresponding to the 19-21 fully diluted EPS forecast of 0.22 yuan 0.42 yuan 0.59 yuan, the current stock price corresponding to PE times 43-22-16, maintaining the "overweight" rating.