Investment Highlights

Expand into Internet-based new media business. Incorporated in1998, the Company’s business spans across five fields includingbroadcasting network, movie content, advertise production & agent,investment, and tourism property. Over recent years, the Companyextended strategic cooperation with Alibaba etc. to sharpen its corecompetitiveness, and rode on the mobile Internet trend to actively buildpresence in the Internet-based new media field. In 2015, the Companyposted turnover of Rmb5,985mn (+9.34% YoY) and net profit ofRmb381mn (+14.68% YoY).

“Cloud-pipe (access)-device” leads reform of cable TV SOEs inChina. Cable TV is the largest media by audience coverage. As of2014, China had 233mn cable TV subscribers, and cable TV coveredover 98% of its total population. Looking ahead, role of the cable TVoperators is expected to transform from merely an access servicesupplier to an integrated service provider, and their businesses willexpand from “pipe” to “cloud, pipe and device”. In addition, the Chinesecable TV subsector is also expected to leverage its subscriber andresource advantages to foray into the content industry chain, thusfurther sharpening its competitiveness.

The Company is a pioneer of SOE reform and aims to build avertical entertainment ecosystem. Over the recent years, theCompany has been proactively transforming into the Internet-basednew media market, and launched a slew of cooperation and externalacquisitions. On one hand, it pressed ahead with establishment of avertically integrated entertainment ecosystem leveraging on thetraditional cable TV subscribers, and has established presence in“channel, platform and context” fields; on the other, the Companyleverages its strength in traditional advertising business to transforminto mobile marketing field, and has expanded its footprint to multiplefields including brand advertising, performance marketing, mobileadvertising platform, application/game distribution, mobile mediaplatform etc.

Build the top-notch entertainment ecosystem, foray into mobilemarketing through external acquisition, and maintain top-notchinvestment management resources. (1) Entertainment ecosystem:since 2015, the Company has introduced the entertainment contentsystem of Alibaba, and extended strategic cooperation with Lions GateEntertainment on sharing the latter’s global box office income throughUS$375mn investment over the next three years. (2) Marketing: theCompany’s traditional advertising business recorded steadydevelopment on the back of premium resources such as Hunan SatelliteTV and TV on high-speed rails, and in the meantime, it has activelyforayed into the mobile marketing field through a series of acquisitiondeals, in an effort to maximize the synergies in marketing business based on the offline and online bigdata. (3) Investment management: the Company holds a 100% stake in Fortune Capital, a top-classChinese VC, which ranks the first place among peers by investment returns in 2015.

Risks: Systemic risk in macro economy; risk associated with M&A progress and management of M&Aand business integration.

Earnings forecast, valuation and investment rating: Consolidation of acquired assets such as Adwo(a mobile advertising platform) and 9you (an online game developer/operator) is tipped to boost theCompany’s earnings. Considering that the Company decides to stop acquisition of Chengdu Guqiangand given slowdown of its acquisition pace, we trim estimate of the Company’s 2016~17E pro forma EPSto Rmb0.52/0.62 from Rmb0.70/0.99, and project its 2018E pro forma EPS to be Rmb0.71. Its last shareprice of Rmb19.56 translates into 37x/31/x28x 2016~18E PE. We value the Company’s cable TV,advertising, movie, Internet, investment management and tourism businesses at Rmb18bn, Rmb6bn,Rmb4bn, Rmb6bn, Rmb5.25bn and Rmb1.5bn, respectively, adding up to a combined fair capitalizationof Rmb40.75bn, which equal to a target price of Rmb26.81 (post follow-on offering). Taking into accountthe Company’s leading position during transformation of media SOEs, its top-class resources (HunanSatellite TV and Alibaba), and near-term catalysts in the media sector (privatization of Qihoo360, IPO ofCentral Pictures Corporation), our BUY rating remains intact. Investors are advised to seize the mediumto long-term investment value.