We visited EDU, TAL and other private tutoring companies and industryexperts in our recent Education trip. Both EDU and TAL were confident indelivering the guided results in next quarters. EDU will likely show earlier signsof robust K12 growth due to a larger scale of the summer marketing campaignfor Grade 7 students. TAL may need two quarters to show both robust toplinegrowth and margin improvement. In the long run, the determined commitmentto Dual teachers and live broadcasting will impact the cost structure in apositive way. We believe the solid operations in the recent couple of monthswill continue to help the companies to deliver healthy financial performanceand reiterate our buy ratings.    EDU’s summer promotion attracted around 500k enrollments in China, around150k of which were in Beijing. The Beijing enrollment could translate intoaround 30k Grade 7 students in summer and 45k enrollments in autumn. Thisnumber already accounts for around 10% market share in Beijing for Grade 7students, which is better than our previous expectation. We believe the solidexecution and marketing campaign in Grade 7 enrolling will continue to helpEDU to consolidate the tutoring market and deliver strong topline growthgoing forward. Executives are also confident in delivering margin improvementin the next three to four quarters, after incorporating the 30% capacityexpansion in FY18.    TAL is improving the utilization rate of new learning centers is committed toroll out the dual teacher and live broadcasting system. In the long term, themargin should have 10 ppts improvement due to higher penetration of thesetwo new-form tutoring. We believe TAL will release the margin buffer goingforward. The executives are confident to continue 30-50% capacity expansionin next couple of years. The brand name and enrollment quality will likely notdilute under such expansion speed.    The education and tutoring industry is still in a fragmented state. Smallclasses, 1x1, online and knowledge base are all starting from differentperspectives to help the students to improve exam scores. Going forward,the boutique players need to provide more comprehensive services to fullyutilize the enrollments. The existing leaders of EDU and TAL are still inbest position, in our view.    Low tier cites and top tier cites with insufficient tutoring supply shouldhave rapid growth in next couple of years. Both EDU/TAL and new playersare entering these markets directly and indirectly. Before the market isfully penetrated, experts are not concerned about completion.

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