Upgrading to Buy due to better industry outlook - 2017 is bottoming out We upgrade Jinjiang Hotels to Buy, with a new TP of RMB37 (from RMB34).The upgrade is mainly due to: 1) Plateno and Vienna’s full year consolidation in2017, 2) reduced cost and expenses after acquisition, and 3) better outlookdriven by Chinese economy hotels’ recovery. We believe the company willstart to focus on internal consolidation of its current four hotel brands and thatit is likely to halt further expansion through acquisition. Off to a good start: 1Q17 RevPAR growth and reduced cost and expenses Jinjiang has reported 1Q17 RevPAR growth of 1.36%; however, if we factor inthe reform of business tax to VAT, the comparable RevPAR growth is 6.36%(i.e. 1.36%+5% of business tax rate, vs. China Lodging’s RevPAR yoy growthof 9.4%). In addition, Jinjiang cut its costs and expenses by c.RMB10m in1Q17. In the same period last year, there was expense incurred for theacquisition of Plateno and more financial cost. As domestic tourists reached4.4 billion (yoy growth of 10%) in 2016, we believe strong demand for budgetand mid-scale hotels will continue in 2017E. Newly-acquired hotels likely to double EBITDA contribution in 2017 We have factored in the full-year contribution of newly-acquired hotelsincluding Plateno (9-10M contribution in 2016) and Vienna (half-yearcontribution in 2016). We mainly raise our Plateno EBITDA estimate, by c.40%to reach c. RMB1.1bn (doubled from RMB0.6bn in 2016), due to the full-yearcontribution and cost efficiencies. As a result, we increase our earningsforecasts in 2017/2018 by 26%/29%. Valuation and risks We use SOTP based on EV/EBITDA (12-month weighted average) as ourprimary valuation methodology. We separately calculate the EBIDTA ofJinjiang’s Chinese and overseas selected hotel businesses. We assign a 12xmultiple to Hotel Louvre, which is in line with the high-end of European peers.We assign a 14x multiple to Plateno (7 days) and the original Jinjiang Chineseselected hotel business (in line with the original China lodging business), whichis the average for its peers. Risks: 1) lower tourism demand; 2) stronger RMB,leading to more outbound travel; and 3) government policy changes.

Lifting TP on a better outlook for duty-free growth in 2017/18 - Buy. HKIA duty-free business will start contribution in 2018E Although the final bidding result for T2&T3 duty-free concession in BJCIA has not been disclosed yet, we lift our TP for China Travel on the better outlook for duty-free business. To remind, CITS announced on 5 April that the joint venture (CDF-Lagardere Limited) of China Duty Free Group and Lagardere Travel retail had won the bidding for the Hong Kong International Airport (HKIA) duty-free liquor and tobacco concession for seven years from DFS Group. Also, the company's 1Q17 duty-free sales show 16.7% yoy growth. Factoring in these two near-term catalysts, we lift our TP to RMB65 from RMB57. HKIA duty-free business will start contribution in 2018E. Retail licenses and advertising revenue amounted to HKD7.5bn in 2015 and total traffic was 70.5 million in 2016, as per the public annual report of HKIA. Its retail business of liquor & tobacco and cosmetics & perfume accounted for c. HKD5bn revenue in 2016. The company also disclosed that they will gradually take over the operation from Nov 18, 2017 to May 2018. We assume that 50% revenue is for the liquor and tobacco JV business with 2018 full year contribution and we can assign a 56% gross margin (based on 2016) and 15% net margin on that business to be conservative; we can derive net earnings of c. RMB169m (5,000 million * 0.9 (fx rate) * 50% * 50% * 15%). This is roughly 7% of our estimate for CITS’ 2018 net income of RMB2,401m. We lift our 2017 earnings forecast due to 1Q17 duty-free performance. Based on MOFCOM data, 1Q17 Hainan duty-free sales grew 16.7% yoy to RMB2.63bn, we lift our 2017 Haitang Bay revenue growth to 15% from the previous 10%. Therefore, we basically lift duty-free 2017/18 revenue growth forecasts to 12%/14% yoy, from 8%/8% previously. As a result, our TP reaches RMB65 because we increase our earnings forecast in 2017/18 by 12%/11% to RMB2.2bn and RMB2.4bn. This is mainly due to revenue mix change. Valuation and risks. We derive our RMB65 TP from a DCF-based valuation (8.1% WACC, 9% cost of equity, beta of 0.9 and 3.0% TGR, unchanged). CITS currently trades at 24.5x 2017E PER but at a lower multiple (22.7x) on our 2018E earnings. Key downside risks include: 1) unfavorable government policy, 2) e-commerce competition, 3) delay in lifting shopping quota and 4) competition from OTAs.

The Ministry of Commerce (MOFCOM) released March’s Hainan duty free sales (Sanya + Haikou) yesterday. March 2017 duty free sales growth was 28.5% yoy. We believe this is mainly due to the 30.5% yoy growth of number of customers. Based on MOFCOM data, 1Q17 duty free sales grew 16.7% yoy to RMB2.63bn and number of customers increased 22% to 0.7 million. This implies a 4.6% yoy decrease of ticket price to RMB3,750. In our view, given the promotion efforts and accumulated demand, we expect 2017 duty free sales will keep a double digit growth. It seems that the result of 1Q17 duty free sales gets off to a good start.

1Q17 topline down 14% yoy but core earnings up 18% yoy. CYTS announced its 1Q17 results today. Although the company’s 1Q17topline decreased by 14% yoy to RMB2bn from RMB2.4 bn in 1Q16, the coreearnings increased by 18% yoy to RMB90m. This is mainly due to the marginexpansion driven by its ancient town operation business contribution offset byits exhibition business’s 48% yoy drop due to the seasonal effect. Thecompany also made an announcement to clarify their stake on two ancienttowns (66% ownership on Wuzhen and 41.29% ownership in Gubei Town). Ancient towns continue shining. Gubei town continues to surprise us with solid traffic growth of 106% yoy(reach 0.28 million visitors) and topline growth of 74% yoy in 1Q17. This ismainly due to more scenic tours and marketing campaigns. We believe theASP should also increase in 2017 since the company removed the night tourdiscount (RMB150 from RMB80). Although traffic of 2 million is flattish yoy,Wuzhen’s top line increased by 10% yoy due to the launch of tour package ofWucun village and International Internet conference venue.

Earnings beat; valuation more attractive; U/G to Buy. In a tough environment, the film Enlight's 2016 top line increased only 14% yoy to RMB1,731m, while its net profit increased 84% yoy to RMB741m, beating our estimate of RMB654m by 13%. This was mainly due to a significant margin expansion in 2016, driven by film, TV drama and the new live broadcasting business. (Note that the company’s net margin increased to 43% in 2016 from 26% in 2015.) We believe this affirms the company’s competitive advantage in the content investment/movie distribution industry. In addition, Enlight is trading at 26x our 2017 earnings estimate, which we believe is much more attractive than before. We thus upgrade Enlight Media to Buy. In a tough environment, the film business outperformed the market in 2016. In 2016, Enlight Media distributed 13 movies, which generated a total box office of RMB6.4bn (RMB5.6bn in 2015, +14% yoy, vs.+3.7% yoy China box office growth). Popular movies invested in and distributed include The Mermaid (it generated a record-breaking box office of RMB3.2bn). In mid-2016, the company entered the live broadcasting business (which contributed 14% of the 2016 top line) by increasing its stake in Qiju Tech to 63.2% from 26.8%. In the future, we see Enlight taking the lead in the upstream market. Clearly, Enlight has assured investors of its capability - that an upstream movie company can also retain sustainable growth through: 1) a steady number of invested movies via stringent and prudent IP screenings; 2) increasing its market share and market reputation in the animation market; and 3) leveraging Maoyan not only as a online ticket distribution but also a movie distribution platform. We cut our sales by 21% as the company will decrease its investment on TV entertainment programs in the future, which will have no impact on earnings. Valuation and risks. We derive our target price of RMB13 on a DCF-based valuation (8.8% WACC and 4% tgr, unchanged). The stock trades at 26x 2017E PER but at a much lower multiple (21.5x) on our 2018E earnings, which we believe is more attractive than that in 2016. Downside risks include lower-than-expected return from films and production delays.

2016top line up by 34%; bottom line up by 3%. Caissa Travel announced its 2016annual report on the evening of 24April. Thecompany’s 2016top line increased by 34% yoy, to RMB6.6bn (missing ourestimate of RMB7.4bn by 10%), but its net profit increased only slightly, by 3%yoy, to RMB213m, from RMB206m in 2015, missing our estimate of RMB241mby 12%. We believe this was due mainly to the slowdown of outbound travelgrowth in 2016. We reiterate our Buy rating for Caissa, with a new target priceof RMB26(from RMB28), revised down owing mainly to a slight cut in our2017retail sales business growth forecast.Top line up 34% yoy, driven mainly by outbound retail business. Caissa’s retail sales revenue rose 32%, to RMB3.95bn, in 2016, from RMB3bnin 2015; this was the main driver of total top-line growth, due mainly to the95% yoy growth in retail customers. Revenues for the wholesale business rose11%, to RMB886m, from RMB796m in 2015. At the start of 2017, the companyhad 282offline stores, with 82newly added in 2016. We believe Caissa’smargins will increase in 2017, benefiting from the company’s strong retailbrand and solid market share in the European, Japanese and Korean markets.We cut our 2017earnings forecast slightly, by 5%. The main cut is to our 2017Europe line retail sales growth forecast, to 30%,from 35%, as we believe the recent Paris terrorist attack in April will affect the3Q peak season. We also cut our 2017Asia line retail sales growth forecast, to90%, from 100%. As a result, our 2017E net profit decreases by 5%.Valuation and risks. Our RMB26target price is DCF-derived (9.6% WACC, 3% TGR, consideringChina's outbound travel has just started). The stock is trading at 31x 2017EPER but at a lower multiple (23x) on 2018E earnings, which we believe isjustified. Key downside risks: 1) lower-than-expected number of outboundtravellers; 2) policy changes; 3) negative events, such as terrorist attacks.

2016earnings missed mainly due to margin decrease in TV drama. Huace Film&TV announced its 2016annual report in the evening of 24April.Although the company’s 2016top line increased significantly by 67% yoy toRMB4,445m (beating our estimate of RMB3,529m by 26%), its core earningsincluding recurring government subsidies) decreased by 7% yoy to RMB483m,missing our estimate of RMB539m by 10%. We believe that this is mainly dueto the significant margin decrease as a result of less revenue booking in 2016because of 2H15TV drama sales in advance and increasing production costssuch as actors’ pay) of its TV drama business. We maintain our Buy rating forHuace with a target price of RMB17(from the previous RMB19).Top line up 67% yoy mainly driven by TV drama and entertainment shows. Total revenue increased 67% yoy to RMB4.4bn, which is attributable to: 1) theTV drama production top line increasing by 81% yoy to RMB3.6bn, and 2) theentertainment show top line increasing by 112% yoy to RMB385m. 2016’sslow box office growth has resulted in a 17% yoy drop in the company’s filmbusiness top line. However, since total gross margin decreased to 25% in 2016from 37% in 2015and SG&A expenses increased by 20% yoy in 2016, core netearnings dropped by 7% yoy.We lower our 2017earnings forecast by 10% due to a margin decrease in 2016As production costs including actors’ compensation and IP costs continue toincrease in 2017, we mainly lower 2017gross margin for TV drama to 34%from the previous 39.6%. We also lower our 2017growth forecast for filmbusiness revenue to 15% from 35% previously due to the currently weakcontent of Chinese movies in 2017. As a result, the 2017E net profit forecastdecreases by 10%.Valuation and risks. We derive our target price of RMB17from a DCF-based valuation (WACC of8.7% and TGR of 3%, reflecting modest growth rates in China's TVdrama/movie industry). The stock is currently trading at 23x 2017E PER, but atlower multiple (19x) on our 2018E earnings, which we believe is moreattractive than previously in 2016. Key downside risks: 1) piracy issues, 2)tightening SARFT policies, 3) rising competition from self-produced internetdramas, 4) distribution delays, and 5) uncertainty in new business segments.

2016 further strengthened our confidence in long-term sustainable growth 2017 and the next three years; what to focus on investing in CYTS? We maintain Buy on CYTS and fine tune our target price to RMB26. 2016’s robust earnings growth further confirmed our view that CYTS’s top management/operations in the two leading ancient towns will continue to fuel its growth in the next three to five years. Wuzhen Town, for example, surprised the market with a breakthrough of 9 million visitors in 2016 (14% growth) in unfavorable circumstances, with 1) more rainy seasons, 2) shutdowns for the G20 summit, and 3) internet conferences etc. In addition, Gubei Town’s visitors grew by 66% to 2.44 million due to robust demand in domestic travel. 2017 and the next three years; what to focus on investing in CYTS? We believe a highly professional team in tourist site operation, especially ancient Chinese towns, is the competitive edge for CYTS and this helps raise CYTS’s barriers to entry. In addition, while investors may be concerned about capacity limits, we disagree, as management disclosed during today’s conference call that it is continuously expanding, with 1) more cultural events to attract visitors, 2) more venues for business events in the towns, and 3) more hotel rooms i.e. from 956 hotel rooms in 2015 to c.1,300 in 2016 in Gubei Town. In addition, outside of Wuzhen and Gubei Towns, CYTS confirms the kick-off the third ancient town development, Puyuan Town, which is expected to be finished in 2019 and will attract c.4 million visitors annually. We raise our 2017 earnings forecast slightly by 5% We expect total traffic for Wuzhen’s West Zone/East Zone to increase by 11% yoy to 10 million in 2017E. Management guided that CYTS will allow more tourists to visit West Zone, which is normally for hotel guests. We also increase our 2017/18 Wuzhen ASP growth forecast to 12%/10% from 5%/7% previously due to the upcoming ticket price hikes effective from 2H17. Valuation and risks We derive our target price from a DCF-based valuation. Our key assumptions remain unchanged, with a WACC of 8.1%, beta of 0.91, CoE 9.0%, and terminal growth rate of 3% (for the strong growth outlook in the ancient town business). CYTS is now trading at 27x 2017E earnings, which we believe is attractive given an earnings CAGR of 23% for 2016-18E. Key downside risks include a tourism industry slowdown and delays/uncertainties in ancient town new projects.

CYTS Tours - Post Result Update, Group Conference Call, 24 Apr @ 16:00HK time / 09:00 UK time/ 04:00 NY time. CYTS will announce results on 20 Apr 2017. We will host post result updategroup conference call with CYTS’s Head of Investor Relations Mr. Li Lan.

2016 earnings largely in line thanks to more efficient cost and expense control Outlook for 2017E: SOE reform: Huangshan Tourism announced 2016 annual results. Top line of RMB1,669m was flattish yoy, missing our estimate of RMB1,781m by 6%, mainly because 3Q16 had more rainy days (a factor for all tourist site operating companies in our coverage). However, the company reported 11% yoy growth in core earnings (RMB328m vs RMB294m in 2015), largely in line with our estimate of RMB335m. We believe this was mainly due to management’s better control over costs and expenses, which led to margin expansion. We reiterate Buy on Huangshan and maintain our price target of RMB22.4. Outlook for 2017E: SOE reform: new incentive should drive earnings The new chairman intends to turn Huangshan into a market-driven listco by trying to separate the operation from the Huangshan government. As a result, there is a new remuneration incentive for management in 2017: 20% of the net profit that exceeds the target will be shared by top management as an additional incentive. Management guided that Huangshan will attract at least 3.3-3.4m tourists in 2017E and the company will continue the long-term strategy of “stepping out of the mountain”. We leave our 2017 earnings forecast largely unchanged. DB will provide an update by hosting a group conference call with Huangshan management on 18 April 2017 at 4pm. Looking beyond 2017E, we see a few catalysts for the company. Catalysts: 1): We expect the new Hangzhou-Huangshan High-Speed Railway (HSR), to be launched in 2018, to drive significant tourist traffic to Huangshan by connecting it to the population of eastern China (Shanghai, Zhejiang and Jiangsu province). 2) East Huangshan Mountain expansion and the potential acquisition of Hong Cun Village would confirm the company’s long-term strategy of “stepping out of the mountain”. We believe its decision to complete developing the East Huangshan Mountain within three years and the acquisition of shares of Hong Cun Village will further open up capacity. Valuation and risks We derive our target price of RMB22.4 from a DCF-based valuation (9.3% WACC and 3% terminal growth rate). Key downside risks to our call: 1) delays in railway development, and 2) cable car capacity and safety incidents.

Huangshan Tourism - Post Result Update, Group Conference Call, 18 Apr @16:00 HK time / 09:00 UK time/ 04:00 NY time. Huangshan Tourism will announce results on 14 Apr 2017. We will host a postresults update group conference call with Huangshan’s Board Secretary Mr. Huang Jiaping on Apr 18.

What’s new? Songcheng announced to set up new project in Xi’an In April 6, Songcheng Performance announced its plan to set up a culture andarts project in Xi’an with a total investment of c. RMB700million. Thecompany also disclosed the location of the project (west side of the DamingPalace National Heritage Park) and the project content including: A top notch theatre with 3,000 to 4,000 seats and the large performanceshow called The Romance of Xi’an (西安千古情) A square for daily culture and performance shows Tang dynasty theme park with facilities of shopping and entertainment Science and technology museum and other Sightseeing relatedaccessoriesAs per the announcement guided, Xi’an project will start construction in 2H17and start operation within 18 months. DB view: We expect Xi’an project to be the second Hangzhou Songcheng We believe in the long run, Xi’an project will gradually have the same impacton the company’s offline business as Hangzhou Songcheng. According to thedisclosed project content, we believe we can value Xi’an project just as thecopy of Songcheng’s Hangzhou base model. This is mainly due to 1) sameproject content, 2) close tourists traffic volume between two cities and 3)similar ancient cultural theme. Xi’an attracted a total tourist’s traffic of c. 120m in 2015 and c. 150m in2016 (vs. Hangzhou’s traffic of c. 126m in 2015 and c. 140m in 2016). Xi’an is a city with rich and culturally significant history, which is famousfor its Tang dynasty culture. Note that Hangzhou Songcheng isconceptualized upon the painting of Riverside Scene in Song Dynasty. Currently, Xi’an has two cultural shows The Long Regret and Dreamingback to Tang Dynasty with similar ticket price of c.RMB200To recall that Hangzhou Songcheng’s topline was RMB688m in 2016 andRMB701m in 2015. It attracts 3.45 million visitors in 2015 and c.3.38millionvisitors in 2016 (no disclosure on 2016 Annual Result, but we estimate thisnumber based on its ASP of RMB203 in 2015). The historical data implies thatHangzhou Songcheng attracts c. 2.5% of Hangzhou total tourists traffic. Dueto the current two shows’ competition in Xi’an, if we estimate 1% of totaltraffic visiting, Xi’an project will bring c.RMB280m revenue in 2019E.

The Ministry of Commerce (MOFCOM) released January and February’sHainan duty free sales (Sanya + Haikou) this afternoon. January 2017 dutyfree sales growth was 42.8% yoy and February 2017 duty free sales slightlydropped by 3.3% yoy. We believe this is mainly due to the timing of ChineseNew Year (in late January 2017 vs. CNY in mid February 2016). Based on MOFCOM data, 2M17 duty free sales grew 13.1% yoy to RMB1.95bnand number of customers increased 19% to 0.5 million. This implies a 5% yoydecrease of ticket price to RMB3,906. In our view, given the promotion efforts and accumulated demand, we expect2017 duty free sales will keep a double digit growth (c.11%). It seems that theresult of Jan and Feb duty free sales gets off to a good start.

Revenue mix change may continue in 2017ERevenue from non-box office is RMB3.6bn, yoy growth of 101%. Wanda’snon-box office revenue as percentage has increased to 32% from 21% in 2015. This is mainly due to increasing 1) commodity sales including restaurants andmovie derivative products and 2) movie advertising and promotion business. Such business enjoys higher margin (c.50% of gross margin) compared totraditional movie screen business (c. 20% of gross margin). We believe Wandahas become less reliant on box office and tried to leverage its sizable traffic forrepeated consumption. Since the company is still on the way of cinemaexpansion, we also believe that the revenue mix change may continue in2017E.

Milestone catalyst for CITS: BJ Airport kicked off its duty-free bidding for T2&3. Beijing Airport officially released its duty-free bidding details on 24 February. To our surprise, the official announcement stated that duty-free bidding willstart from the current Terminals 2 and 3 of the existing Beijing Airport. (Previously the market believed the duty-free bidding would only apply to thenew Beijing Airport that will start operations in 2019.) We believe both CITSand Sunrise (the current duty-free operator) will likely participate in the bidding. The opening of the bidding is to be announced at 9am on April 4, 2017. Withupside implied by our target, we have a Buy rating on CITS. More than 55% earnings upside potential if CITS can get both T2&3. International traffic in the Beijing Airport is now c. 22 million. Channel checkssuggest that Sunrise is likely to generate c.RMB8bn duty-free sales (assumingper person consumption of RMB1,500, and 25% of the traffic enters the storefor shopping). Airport duty-free is more diversified than the Haitang Bayshopping mall (generating c.RMB5bn duty-free sales) in providing tobacco andliquor, which have a higher sales turnover. Although duty-free business inmost global primary airports doesn’t have a high profit margin, we believe theduty-free business in Beijing Airport should enjoy a relatively fair profit marginas there is only one duty-free operator. If we assign a 15% net margin to thebusiness, upon getting the license, CITS is likely to generate RMB1,200m netprofit, accounting for 55% of net profit in 2018E.