Speeding up on hotel upgrades - Buy RevPAR and earnings growth should significantly improve in 2019E We reiterate Buy on BTG and raise our target price by 9% on a like-for-like basis to RMB32. In our view, BTG’s HomeInns lagged behind China Lodging (HTHT) on 1) upgrading its economy hotels and 2) opening more mid-scale hotels in 2017, which will likely result to slower RevPAR growth in 2018. This is reflected in its valuation discount to HTHT, in our view. However, a few factors have not been factored in: 1) HomeInns should speed up to upgrade 20-25% of its LO hotels in 2018; 2) HomeInns has the highest percentage of LO hotels - thus, we see high operating leverage in 2019 after the upgrade and 3) 50% of the newly opened hotels in 2018 are set to be mid-high-scale hotels. RevPAR and earnings growth should significantly improve in 2019E We increase our 2019 earnings forecast by 13%. We estimate that HomeInns’ upgraded economy hotels only accounted for 3-5% of its total hotels, and mid-high-scale hotels accounted for 17.4%. This is much lower than HTHT’s numbers (38% of economy hotels have been upgraded and mid-high scale hotels accounted for 32% of the total). BTG guided to upgrade 20-25% of its economy hotels (of which 200 hotels are to be leased and owned hotels). In addition, of the 450-500 new hotels set to open in 2018, HomeInns aim to open at least 50% for mid-high-scale hotels. Thus, we believe that RevPAR growth and operating leverage will lead to strong earnings growth in 2019E. Valuation and risks We raise our target price to RMB38 and adjust it down to RMB32 in order to reflect the recent 12-for-10 stock split. Our primary valuation method remains a DCF (8.2% WACC and 3% TGR, unchanged). BTG Hotels trades at only 9x EV/EBITDA, much lower than HTHT (20x 2019E EV/EBITDA). Our target price translates into a target EV/EBITDA of 12x. We believe that the valuation gap between the two companies is widening due to accelerating RevPAR growth for HTHT, based on its first-mover advantage in upgrading its hotels. Yet, through the tailwind of hotel upgrades, HomeInns should also see significant improvement in RevPAR growth - which should lead to a re-rating, in our view. Downside risks include: 1) lower tourism demand, 2) a stronger RMB leading to an increase in outbound travel and 3) government policy changes.

Robust growth in 2017, bottom-line beat consensus and our number - Buy We reiterate Buy on Focus Media (FM) and raise our PT by 13.7% to RMB18.2. FM’s 2017 bottom-line beat our number by 10% and consensus by 3%, basedon its preliminary results. We have seen more traditional consumer andeducation companies investing more via FM’s ad channels. In addition, FM hasoperating leverage as its cost of rent for each screen/post frame is fixed. 2018 outlook: we expect robust growth to continue on further penetration We forecast 23% top-line and 25% bottom-line growth in 2018. We havenoticed internet companies focusing more on lower-tier cities as theypenetrate China. As a result, FM’s management said that its internet clients arerequesting screen/post frame penetration in lower-tier cities. We expect postframes to increase to 1.6m and LCD screens to increase to 300,000, up c.20%yoy. We raise our 2018/2019 earnings forecasts by 11% and 12% to reflect this. Internet, FMCG, education and Baijiu seeing high growthInternet/FMCG clients such as JD, Ali, Baidu and P&G contributed c. 50% ofFM’s ad revenue and their growth remains robust as they are paying moreattention to the inner building and cinema advertisement channels. Ourchannel checks also found strong incremental growth from K12 education andBaijiu companies. For example, mgmt said that Baijiu’s advertisement revenuewas only RMB2-3m in 2016, but it increased 10x to RMB300m in 2017 and islikely to double in 2018E. In education, K12 after-school tutoring companies inparticular are spending more on advertising (for both online and offline classes);these include TAL, EDU, DADA abc (哒哒英语) and Zhangmen (掌门一对一). Valuation and risksOur main valuation method is DCF (9.8% WACC, 3% TGR). FM trades at an excashPER of 24x (it had RMB3.8bn net cash as of 9M17) on our 2018E earningsvs. its 26% three-year earnings CAGR. We view risk-reward as attractive. FMpaid 80% of its earnings as dividend and mgmt guides for largely unchangedpayout for FY2017. Risks: 1) more theaters start their own advertisingbusinesses; 2) threats from other advertising modes; 3) a slowdown in China’sdownstream movie industry; 4) a slowdown in internet/FMCG sector growth.

First six days traffic increased by 15.6% yoy during CNY2018. According to Sanyatour.com (Sanya's official tourism website), during theopening six days of the 2018 Chinese New Year (CNY, Feb15-21), traffic of Sanya(airport+train station) increased by 15.6% yoy to 0.78 million. In addition, total 8scenic spots attracts tourists traffic of 0.97 million (vs. 0.9 million in CNY2017),an increase of 7.9% yoy. Hotels in Sanya recorded occupancy rate of c.80% during CNY2018. According to Sanyatour.com, hotels in Sanya recorded an average occupancy rateof 79.7% during CNY2018, implying a yoy increase of c. 2 ppt (vs. 77.94% duringCNY 2017). To breakdown by areas: Hotels in Yalong Bay enjoyed occupancy rate of 81.1% in CNY2018 (vs. 80.94% in CNY2017). Hotels in Haitang Bay enjoyed occupancy rate of 84.2% in CNY2018 (vs.78.18% in CNY2017). Hotels in Sanya Bay enjoyed occupancy rate of 79.5% in CNY2018. Hotels in Dadonghai enjoyed occupancy rate of 78.1% in CNY2018. Hotels in Sanya Downtown enjoyed occupancy rate of 79.1% in CNY2018. Significant hotel occupancy increase in Haitang Bay benefits CITS' duty freestore Hotels in Haitang Bay recorded over 6 ppt yoy increase of occupancy rate duringCNY2018. We believe this is an clear indication of strong performance of dutyfree business. As we mentioned previously, visitors to Haitang Bay have very fewoptions for any night life, except to stay in the hotel resorts. As CITS' DFS is theonly shopping mall in Haitang Bay, we believe most overnight visitors will visitthe mall for shopping/entertainment in the evening.

Wanda Film announced that Alibaba Group Holdings Ltd (BABA.N) and CulturalInvestment Holdings Ltd (600715.SS) jointly invested a total of RMB7.8bn (for a12.77% stake ) in Wanda Film Holding. Details are as follows:A total stake of 12.77% was acquired at RMB51.96 per share. Alibaba will invest RMB4.68bn (for a 7.66% stake ) to become the secondlargestshareholder in Wanda Film. Cultural Investment will invest RMB3.12bn (for a 5.11% stake) to becomethe third-largest shareholder in Wanda Film. Wanda Group is still the controlling shareholder of Wanda Film, holding48.09% of total shares. Wanda Film was suspended from July 2017, at a closing price ofRMB52.04. Theaters of Culture Investment will join Wanda's theater chain. Wanda will delegate pre-movie advertisement of all the theaters toCulture Investment. Alibaba and Wanda will cooperate on movie distribution/investment/online ticketing platform/movie derivative products.

Core earnings growth range in line with DBe We reiterate our BUY rating on BTG and price target of RMB 35.0 unchanged. BTG announced its preliminary forecasting 2017 result yesterday. BTG guided thatits core earnings growth will be in the range of 289-323% yoy, which is in-linewith our estimates. (We estimate core earnings of RMB 613 million, yoy growthof 322%). Growth driven by hotel recovery and tourist site in Sanya Hotel: BTG guided that both occupancy rate and ADR have increased in2017. This is the key driver for earnings growth of hotel segment. Tourist site: BTG's Nanshan Park in Sanya saw significant visitors growthyoy, which has driven the profit growth. Integration of HomeInns makes the yoy comparison base different. To recap on comparison base difference: HomeInns was consolidated in April2016. As a result, from a comparison perspective, 2016 HomeInns only had 8months of operation while 2017 had full year operation. In addition, from April toSeptember, 2016, BTG only controlled 66.1% stake of HomeInns and BTG furtherincreased its stake to 100% after October 2016. DB's take, we have seen accelerated revpar growth and new hotel additionsWe have seen improving revpar growth for BTG. In our DB Access Chinaconference, management disclosed that blended RevPAR yoy growth acceleratedduring 4Q17 (RevPAR yoy growth: Dec > Nov >Oct). Management was confidentabout fulfilling their target of adding 400-450 hotels in 2017 (guided at thebeginning of 2017) and also guided that the company intends to add c.500 hotelsevery year over the next 4-5 years. The company guided that c.40% of additionswill be mid-scale hotels. They expect there will be c.1,000 mid-scale hotels by theend of 2019, which accounts for c.20% of total hotels. We will have more updateand review our model once the full year result has been announced.

Robust RevPAR growth in 4Q17 driven by ADR increase Jinjiang-A reported its Dec-2017 monthly operational data. Domestic hotelsRevPAR growth in 4Q17 continued to be robust. Jinjiang and Plateno series bothenjoyed RevPAR growth of 6-8% yoy in 4Q17. Vienna's blended RevPAR growthseems flattish. In our view, this is mainly due to its fast expansion (c.40% of totalVienna hotels are newly-added, which are still in ramp-up period). To breakdown: RevPAR of Jinjiang series increased by 4.3%/5.7%/6.1% in Oct/Nov/Dec,mainly driven by ADR growth of 4.3%/2.7%/3.0%. RevPAR of Plateno series increased by 9.1%/7.9%/6.7% in Oct/Nov/Dec,mainly driven by ADR growth of 14.6%/12.9%/11.9%. RevPAR of Vienna series increased by -1.1%/2.0%/1.7% in Oct/Nov/Dec,mainly driven by ADR growth of 1.4%/1.2%/2.2%. Midscale hotels expansion driven by Vienna Jinjiang added 191 hotels in 4Q17 to reach a total hotel number of 6,694 in 2017-End (vs. 6,503 in 9M17). Jinjiang is upgrading its products aggressively to midto-upscale hotels, mainly through the Vienna brand (99 hotels added in 4Q17),just like China Lodging's strategy for more mid-to-upscale hotels and the Hantingupgrade. Management had guided previously that c.15% of hotels are midscale. In addition, 50-60% of the hotel portfolio pipelines are midscale. The Vienna brandled the midscale hotel market expansion with c.300 hotels added in 2017 to reach754 hotels as of 2017-End (vs. 464 hotels in 2016-End).

BTG Hotels (600258.SS) attended our dbAccess China Conference today. Keytakeaways from the conference are as follows:Accelerating RevPAR growth in 4Q17 - BTG Hotels disclosed that blendedRevPAR yoy growth accelerated during 4Q17 (RevPAR yoy growth: Dec > Nov >Oct) and this trend also occurred at Jinjiang and China Lodging. This is mainlydue to the super Golden Week in Oct 2017 (8 days of national holidays includingMid-Autumn Festival which drives more homecoming than traveling). As for thefull year 2017, BTG's RevPAR growth is expected to show a similar trend to thatof Jinjiang. Hotel expansion - Management was confident about fulfilling their target ofadding 400-450 hotels in 2017 (guided at the beginning of 2017) and also guidedthat the company intends to add c.500 hotels every year over the next 4-5 years. Mid-scale hotel proportion - The company guided that c.40% of additions will bemid-scale hotels. They expect there will be c.1,000 mid-scale hotels by the end of2019, which accounts for c.20% of total hotels. M/F hotels proportion - The company disclosed that 70% of total hotels are M/F hotels (Manachise or Franchise) currently. They expect M/F hotels' proportionwill gradually reach to 90% over the next 4-5 years. Hotel traffic breakdown - As for the hotel traffic, c.50% of total comes from theirmembership or centralized reservation system (including their website and APPs),c.15% comes from OTA, c.10% comes from corporate and c.10% comes fromother channels (including walk-in).

Jinjiang added 106 hotels in Oct and Nov 2017 to reach a total hotel numberof 6,609 in 11M17 (vs. 6,503 in 9M17). Jinjiang is upgrading its productsaggressively to mid-to-upscale hotels, mainly through the Vienna brand (51 hotelsadded in Oct and Nov), just like China Lodging's strategy for more mid-to-upscalehotels and the Hanting upgrade. Management had guided previously that c.15%of hotels are midscale. In addition, 50-60% of the hotel portfolio pipelines aremidscale. As of Nov-17, the Vienna brand led the midscale hotel market expansionwith more than 350 hotels added in 2017.

Jinjiang is also on the way of products upgrade We reiterate Buy on Jinjiang Hotels with a TP of RMB37. We believe Jinjiangis also in the process of upgrading its product to meet higher demand fromChinese customers' trading-up, especially in tier 1-2cities. We also believe thecompany will start to focus on internal consolidation of its current four hotelbrands and that it is likely to halt further expansion through acquisition.Earnings growth driven by new brand full-year consolidation; RevPAR growthRecall, 9M17core earnings increased by 62% yoy to RMB494m (vs. RMB306min 9M16). This is mainly due to 1) Plateno and Vienna’s full-year consolidationin 2017, 2) reduced cost and expenses after acquisition, and 3) 9M17JinjiangRevPAR growth of 4.3% (9M17blended RevPAR growth of 6-7% if excludingVAT reform effect), driven by the Chinese economy hotels’ recovery. Midscale hotels expansion driven by Vienna The hotel sector's recovery is mainly due to the robust domestic travel growth.In addition, mid-high-scale economy hotels' growth is driven by the rise indemand of domestic and business travelers, as well as consumer trade-up.Jinjiang is upgrading its products aggressively to mid-to-upscale hotels, mainlythrough the Vienna brand, just like China Lodging's strategy for more mid-toupscalehotels and the Hanting upgrade. Management had guided previouslythat more than 1,000hotels were mid-scale out of a total of 6,503hotels inoperation as of 9M17. In addition, 50-60% of the hotel portfolio pipelines aremidscale. As of 9M17, the Vienna brand led the midscale hotel marketexpansion with more than 300hotels added in 2017YTD. Valuation and risks TP based on SOTP methodology (12-month weighted average EV/EBITDA); Jinjiang operates in multiple business segments (we use DCF as the primarymethodology for other hotel companies to capture secular growth over themedium term). We separately calculate EBIDTA of Jinjiang’s Chinese andoverseas selected hotel businesses. We assign a 12x multiple to Hotel Louvre,which is in line with the high end of European peers. We assign a 14x multipleto Plateno (7days) and the original Jinjiang Chinese selected hotel business,which is the average for peers. Downside risks: 1) lower tourism demand; 2)stronger RMB, leading to more outbound travel; and 3) govt policy changes.

One catalyst comes true, gaining duty free business in SH, ahead ofexpectation We view this event positively and believe its timeline is ahead of our expectation.We believe the launch of working with Sunrise will follow the same pattern as thatof the Sunrise Beijing acquisition. CITS acquired a 51% share of Sunrise Beijingfirst in the middle of this year. CITS and Sunrise Beijing successfully won thebidding of duty free operation of Terminal 2and Terminal 3of Beijing InternationalAirport, respectively. The total duty free sales of Shanghai airports (both Hongqiao and Pudong)should be larger than Beijing Airport. Currently, it's still at a preliminary stage ofcooperation. We believe the key factor here is whether the concessionaire ratepaid to Shanghai airports will be as high as those at Beijing Airport.

According to a news article published by DFE (Duty Free Expert), CDFG-LS (ChinaDuty Free Group and Lagardere Travel retail) launched Duty Zero by cdf, CITS'new brand of liquor & tobacco duty free business in Hong Kong InternationalAirportt (HKIA). Duty Zero stated that it is committed to keeping price of liquor&tobaccothe most attractive in Asia. Duty Zero will operate 8 stores with a total area of 3,400 sq m. It willgradually introduce experience stores with different themes by June2018. To recall, CITS announced on 5 April that the joint venture (CDFG-LS) ofChina Duty Free Group and Lagardere Travel retail had won the biddingfor the HKIA duty-free liquor and tobacco concession for seven years fromDFS Group. CITS owns 80% stake of the joint venture. Operating period will be fromNov 18, 2017 to Sep 30, 2024. Currently, there was still no disclosure onthe concession rate. Traffic for HKIA in 2016 is c.70.8 million (vs. 25 million for BCIA and 35million for Shanghai Pudong). In addition, most of the travellers stay morethan 3 hours in HKIA. We observe traffic in Hong Kong starts to rebound in Sep 2017. Accordingto PartnerNet.HK, visitor arrivals in Hong Kong increased by 4.8% to 4.64million in Sep 2017, mainly driven by 7.2% growth of traffic from MainlandChina (3.6 million in Sep 2017). 9M17 total traffic increased by 2.2% yoyto 42.6 million.

Consensus may not fully capture company's growth, short term and long term We raise our target price for CITS by 37.5% to RMB55, from RMB40.Management has publicly guided that its duty-free business is likely to seegrowth of over 60% yoy for FY2017. Also, we believe consensus hasn’tfactored in profit from Beijing Airport, the potential opening of a downtownduty-free store and the consolidation of duty-free in Shanghai Airport. Given itsrobust and sustainable growth, high barriers to entry and attractive valuation,CITS has become our conviction Buy for 2018. Profit from BCIA should be higher than the consensus estimate We expect RMB6.6bn duty-free sales from BCIA (T2& T3) in 2018. We believethe market is overly concerned with the high concessionaire rate from BeijingAirport: 1) during the transitional 12m, CITS will pay the original concessionairerate agreed with Sunrise, and 2) there is still room for GM improvement, giventhe size-up (CITS’ duty-free GP margin was only c.45% vs. Dufry’s 60% in2016). We estimate RMB623m profit contribution for 2017and RMB349m for2018. We believe this has not been factored into WIND/Bloomberg consensus. Haitang Bay’s robust growth may continue all the way to 2020 We have grown more confident on Haitang Bay duty-free sales after our recentchannel checks. We expect duty-free sales to hit RMB6.55bn in 2017, yoygrowth of 43%, and to grow another 28% in 2018. Our channel check foundthat there are two new additions of luxury hotel resorts (new supply of 800-1,000rooms) in Haitang Bay every year to meet the strong demand fromdomestic travelers. We also believe Atlantis and Haichang Ocean Park, two inprogresstheme parks could add another 5-6m travelers to Haitang Bay. Allthese incremental travelers should benefit duty-free sales’ long-term growth. Two more significant catalysts may double current profit – not priced in yet We believe the current share price hasn’t fully factored in two near-mid-termcatalysts: a downtown duty-free store and consolidation of duty-free businessin Shanghai Pudong/Hongqiao Airports. These two events are likely to bring afurther c.RMB1.2bn in earnings to CITS, which is 35% on top of our 2018E. Valuation and risks Our TP of RMB55implies a forward PER of 24x on our 2018earningsforecasts, which we believe is very attractive, given that the duty-free businessis protected and enjoys barriers to entry in China. We derive our TP based onDCF (8.1% WACC, 9% cost of equity, beta of 0.9and 3.0% TGR, unchanged).Key downside risks include 1) unfavorable government policy, 2) ecommercecompetition, 3) delays in lifting shopping quota, and 4) competition from OTAs.

3Q17core earnings up by 38% yoy Focus Media reported its 3Q results tonight. 3Q17core earnings increased by 38% yoy to RMB1.3bn from RMB0.94bnin 3Q16. Note that in 2017, the company adjusted the government subsidy (usedto be under non-operating income category) to other income. Total revenue increased by 18% yoy to RMB3.1bn in 3Q17, fromRMB2.6bn in 3Q16.9M17core earnings up by 34% yoy 9M17core earnings increased by 34% yoy to RMB3.4bn (vs. RMB2.5bnin 9M16). We saw margin expansion in 9M17, mainly thanks to decreasing salesexpense (2% drop). 9M17top line increased by 16% yoy to RMB8.7bn, from RMB7.5bn in9M16.

Concessionaire rate of 35% is confirmed. This means that CITS has wonthe whole duty free business of Guangzhou Baiyun Intl Airport. (inboundwas won in May 2017earlier, see below) International traffic for Guangzhou Baiyun is expected to be c. 14millionvs. 25million for BCIA and 35million for Shanghai Pudong. Operating period will be from Feb 1, 2018to Jan 31, 2026. Monthly guaranteed sales starts to be RMB32.9m from Aug 1, 2018. Annual increase of monthly guaranteed sales is c.6% of the previousamount. As a result, total CITS's total 8years concession expenses are estimatedto be c. RMB 1.265billion. To recap, CITS won the bidding for inbound duty free of GuangzhouBaiyun Intl Airport with a 42% concessionaire rate at the beginning ofMay 2017. The outbound duty free confirmation makes CITS the exclusive duty-freeplayer at Guangzhou Intl Airport. We have seen CITS becoming more aggressive in gaining duty-freemarket share at major airports this year. So far, CITS has won the biddingat HK Intl Airport, Beijing Capital Intl Airport and Guangzhou Baiyun IntlAirport. The dutyfree period of Sunrise Duty Free Group (Shanghai), whichoperates at Shanghai Pudong International Airport, will expire at the endof 2018E. This leaves only Shanghai as the last piece of the pie of dutyfree for CITS to take, which could be a potential positive catalyst in thenear term, in our view.

Don't underestimate Haitang Bay's duty-free sales growth in 2H17 We recently talked to travel agencies and hotel managers in Haitang Bay in Sanya.According to their feedback, traffic growth in Haitang Bay was robust from Julyto September. We estimate duty-free sales in Haitang Bay could reach as highas 50-60% from July to September. While the market seems to be expecting1) potential bidding for duty-free businesses at Shanghai Pudong Airport and2) approval for a downtown duty-free business in Beijing, we believe CITS'sHaitang Bay duty-free sales may surprise to the upside in 2H17as domestic travelmomentum to Sanya is strong. In view of the national holiday (golden week),we expect October duty-free sales to maintain strong momentum. We slightlyrevise up our revenue/earnings forecasts by 4%/1% for 2017and 6%/7% for 2018to reflect the better-than-expected Haitang Bay duty-free sales. Consequently, welift our target price to RMB40, from RMB37previously. The new Atlantis Sanya Resort should attract more overnight consumers toshop in the Haitang Bay duty-free mall In the longer term, we believe the strong momentum of Haitang Bay's duty-freesales growth will prevail. The world's third Atlantis Hotel Resort is scheduled toopen at the beginning of 2018. Atlantis Resort is not only a luxury hotel but alsoa water park, located only 2km from the Haitang Bay duty-free shopping mall.We expect Atlantis to attract an incremental 2-3million tourists to the HaitangBay area; we believe Atlantis' entertainment facilities should encourage tourists tostay overnight and these tourists will likely be the key traffic driver for the HaitangBay duty-free shopping mall. National holiday kicks off with a strong start; Haitang Bay shopping mall sees19.2% visitor growth on first day According to Sanya tourism statistics, the total number of visitors to the HaitangBay duty-free shopping mall on the first day of the national holiday was 11,951,representing growth of 19.2% yoy vs. only 10k visitors last year (-12% yoy). Hoteloccupancy in the Haitang Bay area also reflects this recovery. The occupancy rateof Haitang Bay hotels is 75%, with an ADR of RMB1,010, representing a rise of15.4%. These data points underpin our view that this should be a year of robustdomestic travel growth, and Sanya is the best proxy for such a recovery. Catalyst ahead? CITS keeps winning new key airports. What's left? According to Duty Free Expert news, CITS is the confirmed winner of theoutbound duty free concession (concessionaire rate of 35%) at Guangzhou BaiyunIntl Airport. To recap, CITS won the bidding for inbound duty free with a 42%