The stock rating maintained in the purchase (Buy) unchanged

The following is a summary of the contents of the report:

Disciplined expansion continues; there is still room for valuations to rise

-From a aperiodic perspective, education spending is relatively strong

In a market environment devoid of cyclical confidence, we believe that the education sector has the potential to exceed the performance of other sectors over the next 12 months because of the defensive nature of family education spending. Learning and thinking, new Oriental and major education have been disciplined to expand their own networks, thus bringing in the past few quarters of the entire industry in the profit margin recovery, but the growth of revenue has slowed slightly.

We believe that, given the expansion potential of these three companies, revenue will not pose a challenge for the next three years. In addition, China's rapid urbanisation is structurally driving the growth of higher-line cities, and the three companies ' brand forces ensure that their ASP (average selling prices) will continue to grow.

1. Learn to think (Buy): Based on learning and thinking of the growth of non-Beijing business, we increase its performance expectations

We learn that earnings per share in fiscal 2014 to 2016 are expected to rise by 3% to 6%, reflecting the success of learning to expand its network in cities outside Beijing and Shanghai. In the last quarter, these cities accounted for more than 34% of their revenue, much higher than the 21% of the same period last year, and we think it proves that the brand has an expandable strength. We believe that these new cities provide a significant market opportunity for the continued profit growth that is learned. From past records, learn to think of the organizational ability to achieve profitability while expanding the business.

In the mature Beijing market, we expect the ASP will continue to be the driving force for learning and thinking. Based on the adjusted performance forecasts, we will be learning to think of the 12-month target price raised from 16 U.S. dollars to 17.5 U.S. dollars.

2. New Oriental (Neutral): slow expansion; risk from Shanghai and foreign exchange

Our channel checks suggest that the new Oriental is still wary of expanding its network, which we believe will bode well for its facility utilization and profitability prospects over the next three years. Since the start of the harvesting strategy last fall (Harvest the harsh), the new Oriental has closed 50 poorly performing learning centers (7% of its Learning Centre network) and reduced its staff by 3600. We expect China and new Oriental to continue to shrink in the next one or two quarters.

We believe that the tail risks facing the recent financial performance of new Oriental include the transition of Shanghai management and the expected slowdown in the renminbi's appreciation against the dollar.

3. Education (Neutral): expected to achieve profitability in the third quarter

The implementation of major education is on track, which gives us the belief that the company will be able to make a profit in the third quarter of fiscal year 2013, which is usually a quarterly period of slow earnings growth. We expect that education will continue to expand its network in the fourth quarter, but margins will not fluctuate significantly. We believe that the maturity of the learning centers of the major education should help absorb the additional costs.