What's new? Pay limit for cast salaries has been launched. On September 22, State Alliance of Radio, Film and Television (SARFT) issued aproposal to limit the pay of actor/actress in Chinese online/TV drama. Cast salaries should be no more than 40% of the total production costsfor online/TV drama series. In addition, the salary of the leading actor/actress cannot exceed 70% ofthe total cast salaries. If cast salaries exceed 40% of total costs, the production company mustlodge an explanation with their association.

DB’s view – Downstream channel expansion continues As per the company announcement, the current valuation of Maoyan is atRMB13.67n. Note that previous Valuation of Maoyan stood at RMB8.3bn. As Enlight Media has strong presence in upstream movie production anddistribution; and Maoyan/Weying is the leading online ticketing platform.The investment in Maoyan offers Enlight Media direct channel access tomovie viewers. In addition, Weying focuses not only movie ticketing platform, but alsoticketing business for show/exhibition/sports events. As of 2016, itsticketing business covered a total of over 2,000theater/exhibition hall/stadium. However, we believe that the profitability of online ticketing businessis still low. Note that Maoyan generated RMB1bn revenue and net lossof RMB109m in 2016, while its bottomline turns positive in 5M17bydelivering revenue of RMB1bn and net profit of RMB73m (implies netmargin of 7%) per company disclosure. As the listco Enlight Media only holds 20% stake in Maoyan, we believethe near-term financial impact is still minimum.

Growth correlated to the new economy We initiate coverage of Focus Media with a Buy rating and a target price ofRMB14, implying 35% upside potential. Focus Media has recently been includedin the MSCI-A and is a leading player in China’s ad industry with dominantmarket share in two channels of advertising: (1) inner building media (90%), and (2) cinema screens (pre-movie advertising). Compared to traditional channels ofadvertising, such as TV etc, these two channels achieve greater impact, given theyare in confined areas holding the captive attention of viewers. These channelsare favored by leading internet/FMCF clients, such as JD, Ali, Baidu, and P&Getc, which contribute approximately 50% of FM’s revenue. We view FM as wellpositionedto ride the growth of China’s new economy. We project a profit CAGRof 20% against peers' 10-15%. Inner building media, the only growing traditional advertisement channel While the growth of other traditional advertisement channels, such as TV/radio/newspapers, has dropped in the past few years, we have seen building mediagrowth remain robust. This is because, amid the intensifying competition fromgrowing internet advertising, building media is more effective in delivering themessage to targeted groups of consumers and raising overall brand awareness.Focus Media dominates the building media market, with market share of morethan 90%. We expect inner building segment revenue to generate a CAGR of16% in 2017-19E, driven by c.12% screen expansion and a 4% increase in ASP.We believe Focus Media's screens (both LCD and poster frame) will continue topenetrate into tier 2-3cities and the company can increase the utilization rate ofits screens. Cinema media, riding on China's movie screen growth Focus Media has 60% market share in theater advertisements (ads before themovie) in China. We have noticed robust growth in this segment in the past fewyears (65%/42%/51% yoy revenue growth in 2014-2016), thanks to significantgrowth in China's movie screens, which have doubled to more than 40,000+from only 20,000in 2014. As this segment is correlated with the movie screenexpansion, we estimate that cinema media revenue CAGR to be 13% in 2017-19E,in line with our estimate of overall movie screen growth. Valuation and risks Our primary valuation method is based on DCF (9.8% WACC and 3% TGR). FocusMedia is currently trading at an ex-cash PER of 18x (the company has a net cashof RMB7.54bn as of 1H17) on our 2018E earnings estimate vs. its 20% three-yearearnings CAGR. We believe the risk-reward profile seems attractive. Key downsiderisks: 1) more theaters start their own advertisement businesses; 2) threats fromother advertising modes; 3) a slowdown in the China movie downstream industry; and 4) slowdown in the internet/FMCG sector growth.

Growth correlated to the new economy We initiate coverage of Focus Media with a Buy rating and a target price ofRMB14, implying 35% upside potential. Focus Media has recently been includedin the MSCI-A and is a leading player in China’s ad industry with dominantmarket share in two channels of advertising:(1) inner building media (90%), and(2) cinema screens (pre-movie advertising). Compared to traditional channels ofadvertising, such as TV etc, these two channels achieve greater impact, given theyare in confined areas holding the captive attention of viewers. These channelsare favored by leading internet/FMCF clients, such as JD, Ali, Baidu, and P&Getc, which contribute approximately 50% of FM’s revenue. We view FM as wellpositionedto ride the growth of China’s new economy. We project a profit CAGRof 20% against peers' 10-15%. Inner building media, the only growing traditional advertisement channel While the growth of other traditional advertisement channels, such as TV/radio/newspapers, has dropped in the past few years, we have seen building mediagrowth remain robust. This is because, amid the intensifying competition fromgrowing internet advertising, building media is more effective in delivering themessage to targeted groups of consumers and raising overall brand awareness.Focus Media dominates the building media market, with market share of morethan 90%. We expect inner building segment revenue to generate a CAGR of16% in 2017-19E, driven by c.12% screen expansion and a 4% increase in ASP.We believe Focus Media's screens (both LCD and poster frame) will continue topenetrate into tier 2-3cities and the company can increase the utilization rate ofits screens. Cinema media, riding on China's movie screen growth Focus Media has 60% market share in theater advertisements (ads before themovie) in China. We have noticed robust growth in this segment in the past fewyears (65%/42%/51% yoy revenue growth in 2014-2016), thanks to significantgrowth in China's movie screens, which have doubled to more than 40,000+from only 20,000in 2014. As this segment is correlated with the movie screenexpansion, we estimate that cinema media revenue CAGR to be 13% in 2017-19E,in line with our estimate of overall movie screen growth.Revised by adding note on pg22that FocusMedia raised RMB 4.86bn in 2016tocomplete 100% of the backdoor listing Valuation and risks Our primary valuation method is based on DCF (9.8% WACC and 3% TGR). FocusMedia is currently trading at an ex-cash PER of 18x (the company has a net cashof RMB7.54bn as of 1H17) on our 2018E earnings estimate vs. its 20% three-yearearnings CAGR. We believe the risk-reward profile seems attractive. Key downsiderisks: 1) more theaters start their own advertisement businesses; 2) threats fromother advertising modes; 3) a slowdown in the China movie downstream industry;and 4) slowdown in the internet/FMCG sector growth.

More details disclosed in the interim result following the preliminary result CITS announced its interim report this evening. Although CITS already announcedits preliminary earnings growth of 16.8% yoy to RMB1.29bn and top line growthof 22.5% yoy to RMB12.6bn a couple of weeks before, we managed to see themore detailed drivers behind the earnings growth through its interim result report.We believe a 44% top-line growth from its duty free business (retail segment) isthe main driver. In addition, the company also consolidated duty free from Sunrisein 1H17with RMB 1.36billion revenue contribution. Valuation and risks We believe CITS’ valuation is very attractive at 22x/19x on our 2017/18earningsforecast, as duty-free is a policy-protected and high-barrier-to-entry business inChina. CITS’ valuation is lower than average retail/travel peers in A shares. Wederive our RMB 37TP from a DCF-based valuation (8.1% WACC, 9% cost ofequity, beta of 0.9and 3.0% TGR, unchanged). Key downside risks include: 1)unfavorable government policy, 2) e-commerce competition, 3) delay in liftingshopping quota, and 4) competition from OTAs.

Bottomline up by 10% mainly driven by cable car business Huangshan announced its 1H17interim report today. The company reported thatcore net profit increased by 10% yoy to RMB192m in 1H17from RMB174m in1H16, in-line with our estimate of RMB194m, while top line was flattish yoy(RMB732m in 1H17vs. RMB726in 1H16). We believe the margin increase wasmainly driven by increasing contribution from its cable car business (enjoys grossmargin of c. 85%). We reiterate our Buy rating on Huangshang Tourism with TPof RMB22.4. Topline slight miss mainly due to more free tickets in 2Q Huangshan attracted 1.64million tourists in 1H17, yoy growth of 16%. However,the company's topline decreased by 1% to RMB732m in 1H17. We believe this ismainly due to more free tickets given in 1H17(note according to management,c.0.2million tourists enjoyed free tickets in 1H17). Last year, free tickets wereconcentrated in Q3, which was a heavy rainy season, therefore we believe growthshould recover in 2H, and keep our full year forecast of 3.9million tourist trafficunchanged. Cable car revenue grew 6% yoy to RMB220m in 1H17from RMB207m in1H16, mainly driven by rising tourism volume (cable cars attracted totaltourists traffic of 3million in 1H17, yoy growth of 8.28%). Revenue from tickets and travel service dropped 6%/13% yoy toRMB108m/RMB136m in 1H17(vs. RMB116m/RMB156m in 1H16). Webelieve this is mainly due to 1) more free ticket events in March and June2017and 2) reform of business tax to VAT (started in May 2016) . Revenue from hotel business delivered yoy growth of 1% to RMB255m in1H17from RMB253m in 1H16.

1H17top line up by 13%; bottom line up by 27% Utour Travel announced its 1H17interim report today. The company reported thattop line increased by 13% yoy to RMB5.05bn in 1H17from RMB4.46bn in 1H16and core net profit increased by 27% yoy to RMB94m in 1H17from RMB74m.We believe the margin increase continues in 2017due to better products mixchange. We reiterate Buy given the company's more diversified products andmore attractive valuation than previously. Our new target price of RMB15(fromRMB17) reflects a cut in our 2017wholesale business growth forecast. Top line up 13% yoy, driven mainly by outbound wholesale business Wholesale outbound - revenue rose 13% to RMB3.88bn in 1H17fromRMB3.43bn in 1H16. This was the main driver of total top-line growth,however, wholesale business growth slows down compared to 27% yoygrowth in 2016. We believe that this is mainly due to the slowdown ofoutbound travel in China (number of outbound tourists increased only by5% to 62million in 1H17from 56million in 1H16) Retail outbound - By end-1H17, the company has 108offline stores.Revenues from the retail sales business rose 7% to RMB769m in 1H17from RMB720m in 1H16. Recall that the company has planned to expandits offline stores to 200in the next two to three years. We believe marginswill continue to increase in 2017under the company’s strategy of revenuemix change.

Conference call takeaway with the management Online show business - Management believes that entry barrier for livebroadcasting business will be higher after more tightening regulationfrom the government in 1H17. As the market leader, they are confidenton Six rooms' sustainable growth in the long term. Offline show business - Management confirms the strategy of adding twoself-owned projects and one revenue share model every year for the next3-4years. The company is in the process of establishing the second performanceshow theater for Lijiang and Sanya. The second theater is aimed forreleasing capacity issue during the peak season. Management also updated on the upcoming offline projects' operationdate: Yangshuo in 1H18, Yichun in 2H17(Oct 2017), Xi'an in End-2018or Early 2019, Shanghai in Early 2019, Zhangjiajie in 1H19, Foshan andAustralia (Gold Coast) in 2020.

Songcheng announced that show businesses in Jiuzhaigou (JiuzhaiRomantic show and the Mystery of Tibet) will start to suspend operationin August 9 due the recent earthquake. Note that On the evening of August 8, an earthquake struck JiuzhaigouCounty in Sichuan Province in China. To recap, Jiuzhai project generated revenue of RMB149m in 2016, whichcontributed 5.65% of Songcheng's total revenue of RMB 2.64bn. The company also disclosed that Jiuzhai project contributed 7% of totalnet earnings in 2016. Therefore, the company believe that the earthquake will have limitedeffect on Songcheng's 2017 total topline and bottomline due to Jiuzhai'slow contribution. Please also note that as of August 8, the revenue of Jiuzhai project wasc. RMB97m, which accounts for 65% of its revenue in 2016.

We estimate 1H17comparable RevPAR yoy growth to be 5-6%Jinjiang-A has reported its June-17hotel operational data by brand. We estimatethat the company enjoys solid operational results with blended RevPAR growthof 2-3% yoy. However, if we factor in the reform of business tax (5%) to VAT andproducts mix change, the comparable blended RevPAR growth is 5-6% (2.5-3%yoy increase of occupancy rate and 2-3% yoy growth of ADR). For mid-scalehotels, we estimate a RevPAR growth 10% yoy mainly driven by ADR growth of6-7%. Breakdown by brand: Jinjiang brand - 1H17RevPAR was estimated to be RMB139with 76%occupancy rate. For like-for-like basis (VAT reform effect started in May2016), 1H17RevPAR growth of 6% was driven by 1) 1.6% yoy increase ofoccupancy rate and 2) 3.5% yoy growth of ADR. Plateno brand - 1H17RevPAR was estimated to be RMB123with 79%occupancy rate. Since Plateno was consolidated in 2Q16. 2Q17RevPARgrowth of 8% was driven by 1) 4.5% yoy increase of occupancy rate and2) 2.2% yoy growth of ADR. Louvre brand - 1H17RevPAR was estimated to be EUR36with 61%occupancy rate. 1H17RevPAR growth of 3% was driven by 1) 2% yoyincrease of occupancy rate and 2) 1% yoy growth of ADR. Vienna brand - Vienna was consolidated in 2H16. As mid-scale hotels,Vienna was estimated to generate 1H17RevPAR of RMB209withoccupancy rate of 87% (vs. 1H17occupancy rate of 86% for ChinaLodging mid-scale hotels). By end of 1H17, there were 581hotels inoperation (vs. 464hotels by 2016end). Management guided previouslythat there will be c.700of Vienna hotels in operation by 2017end. DB’s view - 1H17results support our view that demand is improving Just like China Lodging's strategy on more mid-to-upscale hotels and Hantingupgrade, Jinjiang is also upgrading its product aggressively to mid-to-upscalehotel mainly through the brand of Vienna. Management guided previously thatmore than 1,000hotels are mid-scale among total 6,297hotels in operation by1H17end. We believe the major hotel groups are in the process of upgrading theirproduct to meet the higher demand from Chinese customer's trade-up, especiallyin tier 1-2cities. The hotel sector's recovery is mainly due to the robust domestictravel growth. In addition, mid-high-scale economy hotels' growth is driven bythe rise in demand by domestic travelers and business travelers, and consumertrade-up.

1H17core earnings down 8% yoy mainly due to margin decrease in TV drama Huace Film&TV announced its 1H17results. Although the company’s 2016topline increased by 13% yoy to RMB1,75bn, its core earnings (non-recurring itemsmainly include government subsidies) decreased by 8% yoy to RMB225m. Webelieve that this is mainly due to the significant margin decrease because someof the TV drama revenue/profit recognition will be delayed in 2H17. We maintainour Buy rating for Huace with a target price of RMB14.8. Top line up 13% yoy mainly driven by TV drama and talent agency business Total revenue increased 13% yoy to RMB1.75bn, which is attributable to: 1) theTV drama production top line increasing by 39% yoy to RMB1.44bn, and 2) thetalent agency top line increasing by 621% yoy to RMB46m. 1H17Chinese movies'weak performance has resulted in a 19% yoy drop in the company’s film businesstop line. The company also shift their film strategy to distribution instead ofproduction. In addition, we saw significant growth of its talent agency and onlinegaming business. However, since total gross margin decreased to 25% in 1H17from 34% in 1H16and SG&A expenses increased by 38% yoy in 1H17, core netearnings dropped by 8% yoy. We believe earnings will lean more on 2H17 Since more revenue/profit will be recognized in 2H17, we are confident on our TVdrama revenue growth estimate of 20%. The company disclosed that there will bemore than 11TV drama's revenue recognition in 2H17. Looking at the full year of2017, management seems to be confident of delivering earnings of RMB 650m,as guided in its previous stock incentive plan.

Songcheng is ramping up its "revenue share" business for performance shows. Following Songcheng's first "revenue share" performance show of NingxiangTanhe (in Hunan Province) launched in 2016, for which the company will chargean initial franchise fee of RMB260m and 20% revenue share in the next fiveyears, the company has recently signed another two new revenue share shows:1) Mingyue; and 2) Xiqiaoshan. We are expecting Songcheng to receive aninitial franchise fee of RMB270m/260m in 2018 and 2020, and revenue share ofRMB40m/60m in 2017/18. We like Songcheng's new revenue share model in that:1) it is asset-light; 2) demand is strong with sufficient pipeline from many localtourism-oriented governments. Songcheng is guiding to add one revenue shareeach year in the long term; and 3) margin is much higher than for Songcheng'sself-owned performance shows. We reiterate our Buy on Songcheng for its longtermgrowth and expansion in China via its new revenue share business model. 1H17 preview - Hangzhou growth has recovered but Jiuzhai is struggling. We believe Hangzhou-based tourist traffic in 2017 will match the 2015 level (15%of traffic growth). This is mainly due to the impact of G20 in the same periodlast year. We increase our traffic growth forecast for Hangzhou to 15% (from theprevious 5%) for 2017. However, the Jiuzhai performance show was negativelyimpacted by the recent tightening regulation on local travel agencies by theChina Tourism Bureau (Jiuzhai's tourist traffic was down by 14% in 1H17). As aresult, we cut our 2017E traffic growth forecast for Jiuzhai to negative 14% (fromprevious 15%). We also adjust our 2017E Lijiang business growth to 15% (fromthe previous 30%) to match 15% growth of Lijiang tourist traffic in both 1H17 and2016. Therefore, our 2017E earnings are slightly down by 0.5%. Show business expansion continues. Given its clear strategy of adding two self-owned projects and one revenueshare model every year, we believe that Songcheng is on track for its nationalexpansion (another five self-owned projects in the pipeline, including the recentXi'an project), and the company is actively building a well-rounded eco-systemfor both its online and offline businesses. Valuation and risks. We derive a TP of RMB33 based on DCF (WACC 7.7%, TGR of 4%, given stronggrowth outlook for performance show business). The stock currently trades at29.6x our 2017E core earnings. Downside risks: a decline in domestic tourism,rising competition, safety incidents and delays in new project development.

CITS has acquired 51% of Sunrise, and secured both T2& T3duty-free of BCIA. We reiterate our Buy rating on CITS and raise our TP to RMB 37from RMB32.5. CITS announced that it has acquired a 51% stake in Sunrise China for aconsideration of RMB 38.8m at a 1x PB. Sunrise China is the sole duty-freeoperator of Beijing Capital International Airport for T2and T3. CITS alsoannounced that Sunrise has extended its license to operate T3, and CITS(subsidiary: China Duty Free Group) has won the license to operate T2for thenext eight years. Sunrise will be consolidated into CITS for 2H17.Incremental earnings for CITS will start in 2H17, raising our TP to RMB 37. Sunrise’s duty-free revenue was RMB 4.4bn and net profit was RMB 377m in2016. We assign 15% growth for the duty-free sales of BCIA in 2017E andconsolidate 2H17earnings to CITS. Although the concessionaire rate forbidding for BCIA seems high, we believe the margin improvement will bedriven primarily by the following: 1) Sunrise and CITS will have mutual benefitfrom each other’s competitive advantages: CITS has higher negotiation powerin the tobacco channel while Sunrise’s competitive edge is in operatingcosmetic products; and 2) economy of scale: CITS’ total duty-free sales willincrease by almost 40% after consolidating Sunrise. As a result, CITS will havemore negotiation power over its duty-free suppliers.Outlook thereafter? T4of new BCIA and Shanghai HQ/PD airport? We believe winning the BCIA airport is a milestone for CITS to expand itsfootprint in all the primary airports in Greater China. Since the merger of CITSwith China Travel Group, we observe that CITS has been more aggressive andfocused more on its duty-free business. With the new BCIA under constructionand Shanghai Pudong/HongQiao airport’s duty-free license to expire next year,we are confident that CITS will be active in winning the duty-free businessthere.Valuation and risks. We believe CITS’ valuation is very attractive at 23x/20x on our 2017/18earnings forecast, as duty-free is a policy-protected and high-barrier-to-entrybusiness in China. CITS’ valuation is lower than average retail/travel peers in Ashares. Our TP of RMB 37converts to a forward PER of 25x on our 2018earnings forecast. We derive our RMB 37TP from a DCF-based valuation(8.1% WACC, 9% cost of equity, beta of 0.9and 3.0% TGR, unchanged). Keydownside risks include: 1) unfavorable government policy, 2) e-commercecompetition, 3) delay in lifting shopping quota, and 4) competition from OTAs.

Three-year stock option incentive plan is a boost to earnings. Huace has announced a stock option incentive plan for its management andsenior staff. Total options will be 40 million, accounting for 2.29% of total shares,which will be exercised within the next 36 months by portion of 40%/30%/30%. Meanwhile, the company also announced its guaranteed profit for the next threeyears. Net profit for 2017 will be no less than RMB 650m and revenue will be noless than RMB 5.2bn. TV drama ASP "mix up" to drive earnings growth in 2017E and 2018E. As the leader in TV drama production in China, we believe Huace will continue todrive its earnings through high-quality TV drama. Huace has announced a totalof 31 pipeline TV dramas for 2017, and management also guided that mixed ASPfor TV dramas will increase in 2017; for example, they will increase the volume ofTV drama with a per episode price of over RMB 10m and will decrease the outputof TV drama with a per episode price of between RMB 4-8m. We are expectingTV drama revenue to grow 20%, mainly due to the ASP increase. Earnings are likely to lean more towards 2H17. Management guided that 1H17 is not likely to reflect the growth guidance forthe full year (RMB 650m implies full-year growth of 36% yoy) because some ofthe TV drama revenue/profit recognition will be delayed in 2H17. As a result,more revenue/profit will be recognized in 2H17. Looking at the full year of 2017,management seems to be confident of delivering earnings of RMB 650m, asguided in its stock incentive plan. More prudent on movie/entertainment show investment. 2016's movie market was tough for upstream content providers. Huace jointlyparticipated in the distribution/production of nine movies in 2016. We believethe company will be more prudent on the distribution/content investment inthe movie segment in 2017. In addition, the entertainment show sector is verycompetitive in China and a high audience rate doesn't necessarily guarantee profit(only 7% gross margin in 2016). Therefore, management also guided down onthe earnings contribution of the entertainment show business in 2017E. We onlyfactored in 20% and 15% growth for the movie and entertainment show business,respectively, in 2017E.

Adjust target price to RMB32.5 on 2:1 stock split We adjust down our target price proportionately to RMB32.5 from RMB65 to reflect the recent stock split. CITS recently conducted a 2-for-1 stock split, which increased the current number of shares outstanding to 1,952 million. Our net profit forecasts remain unchanged, and we adjust EPS to RMB1.13 for 2017E and RMB1.22 for 2018E to account for the split. April-17 Duty free sales increased by 42.7% yoy The Ministry of Commerce (MOFCOM) released April’s Hainan duty free sales (Sanya + Haikou) today. April 2017 duty free sales increased by 42.7% yoy to RMB551m. We believe this is mainly due to the 35.4% yoy growth of number of customers. Based on MOFCOM data, 4M17 duty free sales grew 20.5% yoy to RMB3.18bn and number of customers increased 24.7% to 0.88 million. This implies a 3.4% yoy decrease of ticket price to RMB3,609. In our view, given the promotion efforts and accumulated demand, we expect 2017 duty free sales will keep a double digit growth.