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[Guojin research] Kaiyuan Co., Ltd. research: the stripping of the main industry of instruments continues to advance, the governance structure optimization is now marginal improvement, and the vocational education giant can start again

[Guojin research] Kaiyuan Co., Ltd. research: the stripping of the main industry of instruments continues to advance, the governance structure optimization is now marginal improvement, Vocational education giants can start again

source: Research Institute

Guojin Securities Research Institute

consumption upgrading and entertainment Research Center

Education Team

investment logic

: in 2016, through the acquisition of Hengqi Education & Zhongda talents, we entered the field of vocational education. On August 16, 2016, the company announced that it planned to acquire Hengqi Education (100%, 1.2 billion yuan) and Zhongda Yingcai (70%, 182million yuan) vocational education companies by combining share issuance and cash acquisition, and cut into the field of vocational education. Since March 2017, the consolidated statements have been made, and the revenue side of 2018q1-q3 vocational education business has contributed 86%, and the profit side has contributed 113% (manufacturing losses)

vocational education track: policy focus support, integration and development potential. Since the beginning of this year, vocational education has been the most important industry supported by the policy. From the beginning of 2019 to now: the two heavy policies issued by the State Council, the national vocational education reform implementation plan (20 articles of Vocational Education) and China's education modernization 2035, clearly proposed to support the development of vocational education, and the March [government work report] clearly pointed out that we should increase the supply of vocational education, including non academic vocational education and academic vocational education, and increase government and social investment. In addition, by the end of 2018, It also puts forward the substantive plan of "tax credit for vocational education expenditure". At present, vocational education in China is still in the middle and early stage, and many tracks still need to be integrated. Hengqi education and CUHK talents are also the leaders in their respective sub sectors, with the potential for integrated development

business progress: Hengqi Education & CUHK talents have performed well and continued to fulfill their commitments. [Hengqi education] it is engaged in the training of financial accounting, design, self-study examination and other industries. In recent years, it has developed rapidly. The revenue in 18 years is expected to exceed 1billion (380million in 16 years), reflecting the ability of Hengqi education strategic development. Up to now, there are about 400 Hengqi education points nationwide (including about 50 design education points). [CUHK talents] its main business is vocational education examination training and vocational skill training. It owns well-known online training brands such as "CUHK", and its products such as "quasi question bank" cover school question banks in financial accounting, construction, securities investment, medicine and other fields. In 2016 and 2017, Hengqi education and CUHK talents have successfully achieved their performance commitments, and they are expected to continue to meet their performance commitments in 2018

major changes: traditional business divestiture is further promoted, education business is purified, and vocational education is focused. In June, 2018, the company began to integrate and divest its traditional main business. On November 17, 2018, Mr. Jiang Yong (founder of Hengqi Education) began to serve as the general manager of the company. In March 2019, it is proposed to sell a wholly-owned subsidiary of the manufacturing industry, thereby completing the divestiture of the manufacturing industry and focusing on the development of vocational education

investment advice

the important change of the company is business purification. It is expected to complete the divestiture in 19 years, and it will become a pure education company after the divestiture. The company is currently in a low valuation position. We believe that with the improvement of the corporate governance structure, the company's operation is expected to continue to improve. The more common is that the maximum range error is out of tolerance and maintains a relatively rapid growth. It is expected that the divestiture may produce a one-time loss, which is reflected in 19 years. We raised the 20-year profit forecast by 40%. It is expected that the net profit attributable to the parent company in 19/20 years will be 155/205 million yuan, regardless of the one-time loss, The PE valuation in 19 years was only 19x. It is recommended to focus on it. The target price is 13 yuan, maintaining the "buy" rating

risk prompt: goodwill impairment risk; Intensifying competition; Risks such as the unfinished divestiture of manufacturing business

① purchase 100% equity of Hengqi education. It is proposed to purchase 100% equity of Hengqi education from Jiang Yong and others, with a total consideration of 1.2 billion yuan (equity payment of 720million yuan, issue price of 14.62 yuan/share + cash payment of 480 million yuan). The original shareholders of Hengqi education promised that the non net profit deducted in 2016 would not be less than 80million yuan, the total non net profit deducted in 2016 and 17 would not be less than 184million yuan, and the total non net profit deducted in 2016, 17 and 18 would not be less than 319 million yuan. That is, at a minimum, Hengqi education will realize a net profit of 80million, 104million and 135million in 2016, 17 and 18 respectively

② purchase 70% equity of Zhongda Yingcai. Purchase 70% equity of Zhongda Yingcai from Zhongda Ruize, with a total consideration of 182 million yuan (equity payment of 91 million yuan, issue price of 14.62 yuan/share + cash payment of 91 million yuan). The former shareholders of Zhongda Yingcai promised that the non net profit deducted in 2016 would not be less than 15 million yuan, the total non net profit deducted in 2016 and 17 would not be less than 35 million yuan, and the total non net profit deducted in 2016, 17 and 18 would not be less than 65 million yuan. That is, at a minimum, CUHK talents will realize net profits of 15 million, 20 million and 30 million respectively in 2016, 17 and 18

since March 2017, vocational education has made a great contribution to performance. Hengqi Education (100%) & CUHK talents (70%) began to consolidate on March 1, 2017, and the vocational education business continued to promote, making a great contribution to performance. In 2017, the company achieved an operating revenue of 981 million yuan, of which vocational education contributed 62.6%, and realized a net profit attributable to the parent of 160 million yuan, of which vocational education contributed 80.5% (consolidation time has been considered). In 2018 q1-q3, the company achieved revenue of 981 million yuan, of which vocational education contributed 86.4%, and the company achieved net profit attributable to the parent of 102 million yuan, of which manufacturing business loss was 13 million yuan, vocational education profit was 115 million yuan, and vocational education contribution was 113.1%. The contribution of vocational education to performance continued to improve

vocational education track: key policy support, great integration and development potential

vocational education has been the industry with the most key policy support since the beginning of this year. From the beginning of 2019 to now: the two heavy policies issued by the State Council, the national vocational education reform implementation plan (20 articles of Vocational Education) and China's education modernization 2035, clearly proposed to support the development of vocational education, and the March [government work report] clearly pointed out that we should increase the supply of vocational education, including non academic vocational education and academic vocational education, and increase government and social investment. In addition, by the end of 2018, It also puts forward the substantive plan of "tax credit for vocational education expenditure". At present, vocational education in China is still in the middle and early stage, and many tracks still need to be integrated. Hengqi education and CUHK talents are also the leaders in their respective sub sectors, with the potential for integrated development

[national vocational education reform implementation plan (20 articles of Vocational Education)] on February 13, 2019, the State Council issued the "national vocational education reform implementation plan" (hereinafter referred to as the "plan"), which proposed comprehensive policy support for vocational education and placed vocational education in a more prominent position in educational reform and innovation and economic and social development. The specific contents include seven aspects: ① improve the national vocational education system, ② build the national standard of vocational education, ③ promote the "dual" education of schools and enterprises through the integration of industry and education, ④ build a diversified school running pattern, ⑤ improve the security policy of technical and skilled talents, ⑥ strengthen the supervision and evaluation of the quality of vocational education, and ⑦ do a good job in the organization and implementation of reform

from the perspective of large industries, the benefit degree of this policy is: academic qualifications and Vocational Education>; Vocational education with completion certificate>; Vocational education without completion certificate. In our view, the two most substantive ones are ① IV. promoting enterprises and social forces to organize high-quality vocational education in the construction of a diversified school running pattern: This is a very important point that the policy focuses on guiding private capital and social forces to run schools. Previously, the draft for examination of the people's Promotion Law mentioned that the expansion of private education companies should be limited, causing market panic. In this policy, the caliber of supporting social forces and private capital in running schools is very important. For the change of fatigue function of combined experimental machines such as emotional torsion and tension fatigue, it can refer to jjg1136 ⑵ 017 verification. ② V. improve the sound funding mechanism in the technical skills talent security policy: this important point is that the most critical issue is that funding has given guidance, emphasizing the need to increase the financial allocation for vocational education on January 16, 2019. Although it is expected that most of the funding will still come from local areas, the overall direction is relatively clear. At least for the cooperation between local governments and private capital, it has a very obvious role in promoting. Most of the other policy provisions support vocational education qualitatively, and these two are the most specific and operable. The general direction is also relatively clear, that is, the central policy level supports the development of vocational education, while local governments and private capital may cooperate in many ways

[China's education modernization 2035] on February 23, 2019, the CPC Central Committee and the State Council issued the "China's education modernization 2035", and issued a notice requiring all regions and departments to earnestly implement it in combination with reality. Overall goal: 2020 is coming soon. The main focus of this stage is to strengthen the overall educational strength and continue to strengthen the average age of education of the working age population. At present, the insufficient supply of education objectively exists, and it is necessary to increase the supply of education with the help of all social forces in order to achieve the average number of years of education for the working age population. "Years" is the key. Now grade compulsory education has been popularized all over the country, but the parts of high school, colleges and universities and vocational education still need to be strengthened. In, we put more emphasis on "lifelong education" than before, so high school, vocational education and higher education are the focus of future development

[government work report] on March 5, 2019, the government work report pointed out in the "2019 government work tasks" section: (1) stabilize and expand employment in a multi pronged manner. We will implement the action to improve vocational skills and allocate 100billion yuan from the balance of the unemployment insurance fund for the skill improvement and job transfer training of more than 15million employees. (2) Accelerating the development of modern vocational education is not only conducive to alleviating the current employment pressure, but also a strategic move to solve the shortage of highly skilled talents. Reform and improve the examination and enrollment methods of higher vocational colleges, and encourage more fresh high school graduates, veterans, laid-off workers, migrant workers, etc. to apply for the examination. This year, a large-scale enrollment expansion of 1million people (if implemented, the number of junior college enrollment is expected to increase by as much as 27% year-on-year in 2019). (3) The central government has greatly increased its investment in higher vocational colleges, and local finance should also strengthen its support. Support enterprises and social forces to set up vocational education

[special additional deduction of personal income tax] on October 20, 2018, the Interim Measures for special additional deduction of personal income tax (Draft for comments) (hereinafter referred to as the "Interim Measures") drafted by the Ministry of Finance and the State Administration of Taxation in conjunction with relevant departments began a two-week public consultation with the whole society. According to the newly revised personal tax law and interim measures, the taxable income of personal tax is calculated. On the basis of the basic deduction of 5000 yuan and the special deductions such as "three insurances and one gold", children's education, continuing education (including academic education and non academic Vocational Education), serious illness medical treatment, housing loan interest or housing rent, and supporting the elderly can also be enjoyed