What happened

Oriental Times Media announced that it had signed strategic cooperation agreement with Guoguang East Network tobuild an ecosystem of internet content with users at the core. The move would consolidate the firms’ respectiveadvantages and cooperate in the fields of content, license and data operation in internet TV and mobile TV businesses.

Comments

To deepen cooperation and strengthen resources in license to build ecosystem for content. In April,Oriental Times Media increased capital in Guoguang East Network and gained 15% in the name, which is one of theseven licensed operators for internet TV platforms in China and controls China International Broadcasting Network.

After gaining a license for internet TV operation by securing stakes in CIBN, the two companies will explore furthercollaboration in internet TV platforms development and operation through strategic cooperation.

Prioritized cooperation to ensure benefits; potential cooperation in four direct ions. The strategiccooperation proposed that the two would prioritize collaboration with each other under fair conditions in four directions– i.e., internet TV content, dis tribution channels, users and platform. They would: 1） cooperate in projects for licensedoperation, market expansion and user development; 2） strengthen resource sharing for IP, platform and users; 3）deepen cooperation in mobile TV; and 4） share existing platforms and data base to target users precisely and improvethe user experience with the help of big data analysis.

Oriental Times Media’s application to acquire Jiabo Cultural Development, Huahua Media and Yuanchun Media wasreceived by the CSRC on December 1, and it is steadily progressing. Considering financial consolidation of M&A targetsin 2017, we maintain our pro forma 2016~2018e EPS forecast at Rmb0.38, Rmb0.53 and Rmb0.60. After sectorcorrection, shares are trading at only 31x 2017e P/E. Maintain BUY.

Risks

Progress in M&A and earnings promises miss expectations; channel construction slows.